0001683168-17-003038.txt : 20171114 0001683168-17-003038.hdr.sgml : 20171114 20171114165745 ACCESSION NUMBER: 0001683168-17-003038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 52 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171114 DATE AS OF CHANGE: 20171114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Mobiquity Technologies, Inc. CENTRAL INDEX KEY: 0001084267 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 113427886 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51160 FILM NUMBER: 171202572 BUSINESS ADDRESS: STREET 1: 35 TORRINGTON LANE CITY: SHOREHAM STATE: NY ZIP: 11786 BUSINESS PHONE: 516-256-7766 MAIL ADDRESS: STREET 1: 35 TORRINGTON LANE CITY: SHOREHAM STATE: NY ZIP: 11786 FORMER COMPANY: FORMER CONFORMED NAME: ACE MARKETING & PROMOTIONS INC DATE OF NAME CHANGE: 19990414 10-Q 1 mobiquity_10q-093017.htm FORM 10-Q

 

Table of Contents

 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

 


COMMISSION FILE NUMBER: 000-51160

 

MOBIQUITY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

 

NEW YORK   11-3427886
(State of jurisdiction of Incorporation)   (I.R.S. Employer Identification No.)

 

35 Torrington Lane

Shoreham, NY 11786

(Address of principal executive offices)

 

(516) 246-9422

(Registrant's telephone number)

 

600 Old Country Road, Suite 541,


Garden City, NY 11530

(Former name, address and fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes    No

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file).

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

  Large accelerated filer  o Accelerated filer  o
  Non-accelerated filer  o Smaller reporting company  x
  Emerging growth company  o  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    No

 

As of November 14, 2017, the registrant had a total of 194,570,601 shares of Common Stock outstanding.

 

 

 

 

 

   

 

 

MOBIQUITY TECHNOLOGIES, INC.

 

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

 

    PAGE  
PART I. FINANCIAL INFORMATION        
         
Item 1. Financial Statements (Unaudited)        
         
Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016 (audited)     3  
         
Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2017 and September 30, 2016 (unaudited)     4  
         
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and September 30, 2016 (unaudited)     5  
         
Notes to Condensed Financial Statements (unaudited)     6  
         
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations     22  
         
Item 3 Quantitative and Qualitative Disclosures     28  
         
Item 4. Controls and Procedures     28  
         
PART II. OTHER INFORMATION        
         
Item 1. Legal Proceedings     29  
         
Item 1A. Risk Factors     29  
         
Item 2. Changes in Securities     30  
         
Item 3. Defaults Upon Senior Securities     31  
         
Item 4. Mine Safety Disclosures     31  
         
Item 5. Other Information     31  
         
Item 6. Exhibits and Reports on Form 8-K     32  
         
SIGNATURES     34  

 

 

 

 

 2 

 

 

Part I - FINANCIAL INFORMATION

 

Item 1. - Financial Statements

 

MOBIQUITY

TECHNOLOGIES, INC.

Condensed Consolidated Balance Sheets

 

 

   September 30,   December 31, 
   2017   2016 
    Unaudited    Audited 
Assets          
           
Current Assets:          
Cash and cash equivalents  $213,268   $193,934 
Accounts receivable, net   205,026     
Prepaid expenses and other current assets   33,143    5,590 
Total Current Assets   451,437    199,524 
           
Property and equipment, net       9,187 
           
Intangible assets, net   14,860    29,560 
           
Other assets   11,275    37,223 
Assets held for sale   567,755    450,680 
Total Assets  $1,045,327   $726,174 
           
Liabilities and Stockholders' Deficit          
           
Current Liabilities:          
Accounts payable  $295,521   $418,719 
Accrued expenses   546,456    1,150,565 
Derivative liability   821,834    350,700 
Convertible promissory notes, net   2,576,189    10,832,275 
Total Current Liabilities   4,240,000    12,752,259 
           
Long-term portion of convertible promissory notes, net        
Liabilities held for sale   801,497    507,042 
Total Liabilities   5,041,497    13,259,301 
           
AAA Preferred Stock, $.0001 par value; 5,000,000 shares authorized 1,107,588 and zero shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively   11,853,913     
           
Stockholders' Deficit:          
Preferred Stock, $.0001 par value; 5,000,000 shares authorized, zero and 240,000 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively       25 
Common stock, $.0001 par value; 900,000,000 and 500,000,000 shares authorized; 194,570,601 and 99,020,103 shares issued and outstanding at September 30, 2017, and December 31, 2016, respectively   19,469    9,913 
Additional paid-in capital   44,266,329    38,652,075 
Accumulated other comprehensive loss       (13,047)
Accumulated deficit   (60,135,881)   (51,182,093)
Total Stockholders' Deficit   (15,850,083)   (12,533,127)
Total Liabilities and Stockholders' Deficit  $1,045,327   $726,174 

 

See notes to condensed consolidated financial statements.

 

 3 

 

 

MOBIQUITY

TECHNOLOGIES, INC.

Condensed Consolidated Statements of Operations (Unaudited)

 

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2017   2016   2017   2016 
                 
Revenues                    
Service revenue  $202,020   $42,562   $384,011   $113,494 
    202,020    42,562    384,011    113,494 
                     
Cost of Revenues                    
Cost of service revenue   154,124    34,603    560,155    122,913 
    154,124    34,603    560,155    122,913 
Gross Profit   47,896    7,959    (176,144)   (9,419)
                     
Operating Expenses:                    
Selling, general and administrative   791,600    1,773,670    3,816,557    5,929,691 
Total Operating Expenses   791,600    1,773,670    3,816,557    5,929,691 
                     
Loss from Operations   (743,704)   (1,765,711)   (3,992,701)   (5,939,110)
                     
Other Income (Expense):                    
Interest expense   (761,691)   (1,177,734)   (2,652,927)   (2,598,411)
Loss on Derivative Instrument   1,608,259    1,444,861    2,892,290    2,201,696 
Initial derivative expense           (1,284,704)   (565,780)
Loss on disposition of fixed assets       (17,526)       (17,526)
Loss on Settlement of Debt   (960,177)       (3,666,374)    
Impairment of intangible assets           (12,127)    
Total Other Income (Expense)   (113,609)   249,601    (4,723,842)   (980,021)
                     
Net Loss from continuing operations  $(857,313)  $(1,516,110)  $(8,716,543)  $(6,919,131)
                     
Other Comprehensive (Loss)       11,129    13,047    (9,660)
                     
Discontinued operations:                    
Income (Loss) from operations of discontinued entity   7,053    (155,014)   (237,244)   (602,663)
                     
Net Comprehensive Loss  $(850,260)  $(1,659,995)  $(8,940,740)  $(7,531,454)
                     
                     
Net Loss Per Common Share:                    
Basic and Diluted  $(0.00)  $(0.02)  $(0.05)  $(0.09)
                     
                     
                     
Weighted Average Common Shares Outstanding:                    
Basic and Diluted   192,860,824    82,656,917    178,527,374    81,619,169 

 

See notes to condensed consolidated financial statements.

 

 

 4 

 

MOBIQUITY

TECHNOLOGIES, INC.

 

Consolidated Statements of Cash Flows (Unaudited)

 

Nine Months Ended September 30,  2017   2016 
Cash Flows from Operating Activities:          
Net loss  $(8,716,543)  $(6,919,131)
Net loss-discontinued operations   (237,245)   (602,663)
    (8,953,788)   (7,521,794)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation Expense   2,994    81,394 
Amortization - Intangible Assets   14,700    14,700 
Amortization - Debt discount   2,061,307    1,878,002 
Stock-based compensation   516,629    512,949 
Common stock issued for services   314,310    122,750 
Initial derivative expense   1,284,704    565,780 
Disposal of assets       17,526 
Gain on change in derivative   (2,892,291)   (2,201,696)
Gain on settlement of debt   3,666,374     
Loss on disposition of fixed assets   12,241     
Expenses paid from note   567,737     
Changes in operating assets and liabilities:          
Accounts receivable   (205,026)    
Inventory        
Prepaid expenses and other assets   (7,654)   (49,906)
Accounts payable   (123,198)   290,019 
Accrued expenses and other current liabilities   (121,332)   72,463 
Accrued interest   471,637    656,431 
Total adjustments   5,563,132    1,963,412 
Net Cash Used in Operating Activities   (3,390,656)   (5,558,382)
           
Cash Flows from Investing Activities:          
Purchase of property and equipment       (253,145)
Net Cash Used in Investing Activities       (253,145)
           
Cash Flows from Financing Activities:          
Convertible notes issued for cash, net   2,378,000    2,840,376 
Proceeds from issuance of common stock   311,250     
Proceeds received from exercising warrants   95,834     
Cash paid for accrued interest   (3,140)    
Proceeds from the collection of stock subscription receivable   456,503     
Proceeds for the issuance of preferred stock       400,000 
Net Cash Provided by Financing Activities   3,238,447    3,240,376 
           
Net (Decrease) in Cash and Cash Equivalents   (152,209)   (2,571,151)
Cash and Cash Equivalents, beginning of period   193,934    130,489 
Cash and Cash Equivalents, end of period  $41,725   $(2,440,662)
           
Supplemental Disclosure Information:          
Cash paid for interest  $   $61,192 
Cash paid for taxes  $   $ 
           
Non-cash Disclosures:          
Conversion of note and interest into AAA Preferred and common stock  $2,706,196   $ 
Extinguishment of convertible promissory notes  $960,178   $ 
Stock issued for interest  $   $449,297 
Original debt discount against derivative liabilities  $   $1,079,016 

 

See notes to condensed consolidated financial statements.

 

 5 

 

 

MOBIQUITY TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF OPERATIONS – On September 10, 2013, Mobiquity Technologies, Inc. changed its name from Ace Marketing & Promotions, Inc. “the Company” or “Mobiquity”). We operate through two wholly-owned U.S. subsidiaries, namely, Mobiquity Networks, Inc. and Ace Marketing & Promotions, Inc. Mobiquity Networks owns 100% of Mobiquity Wireless S.L.U, a company incorporated in Spain. This corporation had an office in Spain to support our U.S. operations, which office was closed in the fourth quarter of 2016.

 

We operate a national location-based mobile advertising network that has developed a consumer-focused proximity network. Our integrated suite of proprietary location based mobile advertising technologies allows clients to execute more personalized and contextually relevant experiences, driving brand awareness and incremental revenue.

 

Mobiquity Technologies, Inc., a New York corporation (OTCQB: MOBQ). Through its wholly-owned subsidiary, Mobiquity Networks, Inc. has evolved and grown from a mobile advertising technology company focused on Driving Awareness and Foot-traffic throughout its indoor mall-based beacon network, into a next generation mobile location data and marketing company. The Company provides precise unique, at-scale location based data and insights on consumer’s real-world behavior and trends for use in marketing and research. With our combined data sets beacon data, and first party location data via our advanced Software Development Kit (SDK) utilizing multiple geo-location technologies; Mobiquity Networks provides one of the most accurate and scaled solution for mobile data collection and analysis. This should create several revenue streams, including, but not limited to; Push Notification Campaigns, Re-targeting Campaigns, Data Licensing, Audience Profiles, Attribution Reporting and Custom Research.

 

Ace Marketing is our legacy marketing and promotions business which provides integrated marketing services to our commercial customers. While Ace Marketing currently represents a substantial portion of our revenue, as anticipated the activity from Ace Marketing was a diminishing portion of corporate revenue as our attention is principally focused on developing and executing on opportunities in our Mobiquity Networks business. Certain assets and liabilities of Ace Marketing were sold in the fourth quarter of 2017 and will no longer be an operating entity for Mobiquity Technologies.

 

GOING CONCERN - The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company's continued existence is dependent upon the Company's ability to obtain additional debt and/or equity financing to advance its new technology revenue stream. The Company has incurred losses for the three months and nine months ended September 30, 2017. As of September 30, 2017, the Company has an accumulated deficit of $60,135,881. The Company has had negative cash flows from operating activities of $3,232,160 for the nine months ended September 30, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

 

Management has plans to address the Company’s financial situation as follows:

 

In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan related to mobile location data. Management will continue to seek out both equity and debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders and investors will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going concern.

 

 

 

 6 

 

 

In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s efforts to raise equity and debt at acceptable terms or that the planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.

 

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Mobiquity Technologies, Inc., formerly known as Ace Marketing & Promotions, Inc., and its wholly owned subsidiaries, Mobiquity Networks, Inc., Ace Marketing, Inc., (which has had its name changed to Ace Marketing & Promotions, Inc.). All intercompany accounts and transactions have been eliminated in consolidation.

 

The Condensed Consolidated Balance Sheets as of September 30, 2017, the Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2017 and 2016 and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 have been prepared by us without audit, and in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly in all material respects our financial position as of September 30, 2017, results of operations for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine months ended September 30, 2017 and 2016. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year. We have evaluated subsequent events through the filing of this Form 10-Q with the Securities and Exchange Commission, and determined there have not been any events that have occurred that would require adjustments to our unaudited Condensed Financial Statements.

 

The information contained in this report on Form 10-Q should be read in conjunction with our Form 10-K for our fiscal year ended December 31, 2016.

 

ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS- The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

  · Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
     
  · Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
     
  · Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

 

 

 

 7 

 

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.

 

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3.

 

    Level 1   Level 2   Level 3   Total 
 Fair value of derivatives   $   $   $821,834   $821,834 

 

Embedded Conversion Features

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.

 

Derivative Financial Instruments

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 12 convertible notes issued totaling $2,136,500 which included a ratchet provision in the conversion price of $.05 or $.30 or a price equal to the last equity transaction completed by the Company as part of a subscription agreement. The notes have maturity dates ranging from July 31, 2017 – February 27, 2018. The Company also has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 500,000 warrants which included a ratchet provision in the conversion price of $.05 as part of a conversion of preferred AAA shares, and 1,000,000 warrants which included a ratchet provision in the conversion price of $.055 as part of a placement fee related to a note. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of September 30, 2017. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and derivative expense of $1,284,704 during the period ended September 30, 2017. As of September 30, 2017, the fair market value of the derivatives aggregated $821,834 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04%, and a discount rate of 0.00% to 1.47%.

 

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of September 30, 2017 and December 31, 2016. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

 

The carrying amounts of financial instruments, including accounts receivable, accounts payable and accrued liabilities, and promissory note, approximated fair value as of September 30, 2017 and December 31, 2016, because of the relatively short-term maturity of these instruments and their market interest rates. No instruments are carried at fair value.

 

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt instruments with a maturity of three months or less, as well as bank money market accounts, to be cash equivalents. As of September 30, 2017, and December 31, 2016, the balances were $213,268 and $193,934, respectively.

 

CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and cash and cash equivalents.

 

Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited.

 

 

 

 8 

 

 

The Company places its temporary cash investments with high credit quality financial institutions. At times, the Company maintains bank account balances, which exceed FDIC limits. As of September 30, 2017, and December 31, 2016, the Company exceeded FDIC limits by $0 and $0, respectively.

 

REVENUE RECOGNITION — The Company recognizes revenue, for all revenue streams, when it is realized or realizable and estimable in accordance with ASC 605, "Revenue Recognition". The Company will recognize revenue only when all of the following criteria have been met:

 

  · Persuasive evidence for an agreement exists;
  · Service has been provided;
  · The fee is fixed or determinable; and,
  · Collection is reasonably assured.

 

ACE MARKETING — Ace Marketing's revenue is recognized when title and risk of loss transfers to the customer and the earnings process is complete. In general, title passes to our customers upon the customer's receipt of the merchandise. Revenue is recognized on a gross basis since Ace Marketing has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk. Advance payments made by customers are included in customer deposits. Ace Marketing records all shipping and handling fees billed to customers as revenues and related costs as cost of goods sold, when incurred. Additional source of revenue, derived from emails/texts directly to consumers are recognized under contractual arrangements. Revenue from this advertising method is recognized at the time of service provided.

 

MOBIQUITY NETWORKS – Revenue is recognized with the billing of an advertising contract or data licensing sale. The customer signs a contract directly with us for an advertising campaign with mutually agreed upon term and is billed on the start date of the advertising campaign, which are normally in short duration periods. The second type of revenue is through the licensing of our data. Revenue from data can occur in two ways; the first is a direct feed, which is billed at the end of each month. The second way is through the purchasing of audience segments. When an audience segment is purchased, we bill the buyer upon reported usage, which is usually 30 days from the order date.

  

ALLOWANCE FOR DOUBTFUL ACCOUNTS - Management must make estimates of the collectability of accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. As of September 30, 2017, and December 31, 2016, allowance for continuing operations doubtful accounts were $0.00 and $0.00, respectively.

 

INVENTORY - Inventory is recorded at cost (First In, First Out) and is comprised of finished goods. The Company maintains an inventory on hand for its largest customer's frequent order items. All items held are branded for the customer, therefore are not available for public distribution. The Company has an agreement with this customer, for cost recovery, if vendor relationship is terminated. There have been minimal reserves placed on inventory, based on this arrangement. As of September 30, 2017, and December 31, 2016, the Company has reserved against $0.00 and $0.00, respectively.

 

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation is expensed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are being amortized using the straight-line method over the estimated useful lives of the related assets or the remaining term of the lease. The costs of additions and improvements, which substantially extend the useful life of a particular asset, are capitalized. Repair and maintenance costs are charged to expense. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the account and the gain or loss on disposition is reflected in operating income.

 

LONG LIVED ASSETS - Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The company recognized $223,487 impairment losses for the period ended December 31, 2016 and $12,127 for the nine months ended September 30, 2017.

 

 

 

 9 

 

 

WEBSITE TECHNOLOGY - Website technology developed during the prior years were capitalized for the period of development and testing. Expenditures during the planning stage and after implementation have been expensed in accordance with ASC 985.

 

ADVERTISING COSTS- Advertising costs are expensed as incurred. For the nine months ended September 30, 2017 and September 30, 2016, there were advertising costs of $0 and $3,129, respectively.

 

ACCOUNTING FOR STOCK BASED COMPENSATION. Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period. The Company uses the Black-Sholes option-pricing model to determine fair value of the awards, which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of the Company's common stock price over the expected term ("volatility") and the number of options for which vesting requirements will not be completed ("forfeitures"). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statements of operations. Refer to Note 6 "Stock Option Plans" in the Notes to Consolidated Financial Statements in this report for a more detailed discussion.

 

BENEFICIAL CONVERSIONS - Debt instruments that contain a beneficial conversion feature are recorded as deemed interest to the holders of the convertible debt instruments. The beneficial conversion is calculated as the difference between the fair values of the underlying common stock less the proceeds that have been received for the debt instrument limited to the value received.

 

FOREIGN CURRENCY TRANSLATIONS - The Company's functional and reporting currency is the U.S. dollar. We owned a subsidiary in Europe. Our subsidiary's functional currency is the EURO. All transactions initiated in EUROs are translated into U.S. dollars in accordance with ASC 830-30, "Translation of Financial Statements," as follows:

 

  (i) Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.
     
  (ii) Fixed assets and equity transactions at historical rates.
     
  (iii) Revenue and expense items at the average rate of exchange prevailing during the period.

  

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders' equity as a component of comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income. The subsidiary has since been closed down with foreign operations now being conducted back in the United States.

 

INCOME TAXES - Deferred income taxes are recognized for temporary differences between financial statement and income tax basis of assets and liabilities for which income tax or tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets, if it is more likely than not, that all or some portion of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

 

 

 

 10 

 

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

 

NOTE 2: LOSS PER SHARE

 

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Dilutive loss per share gives effect to stock options and warrants, which are considered to be dilutive common stock equivalents. Basic loss per common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding. The number of common shares potentially issuable upon the exercise of certain options and warrants that were excluded from the diluted loss per common share calculation was approximately 100,796,390 because they are anti-dilutive as a result of a net loss for the three and nine months ended September 30, 2017.

 

NOTE 3: CONVERTIBLE PROMISSORY NOTES

 

Summary of Convertible Promissory Notes:

 

  

September 30,

2017

  

December 31,

2016

 
Arnost Note  $   $322,000 
Cavu Notes net of $0 for 2017 and $8,379 for 2016   100,000    241,621 
Berg Notes (a)   50,000    3,722,000 
Investor Note, net of discounts   100,000    6,546,654 
Secured Debt (b) net of $425,311 for 2017 and $0 for 2016   2,326,189    -0- 
Total Debt   2,576,189    10,832,275 
Current portion of debt   2,576,189    10,832,275 
Long-term portion of debt  $   $ 

 

  (a) Between August and December 2015, the Company borrowed $3,675,000 from accredited investors. These loans are due and payable the earlier of December 31, 2016 or the completion of an equity financing of at least $2,500,000. Upon the sale of the unsecured promissory notes, the Company issued $1 of principal, one share of common stock and a warrant to purchase one share of common stock at an exercise price of $0.40 per share through August 31, 2017. Accordingly, an aggregate of 3,675,000 shares of common stock and warrants to purchase a like amount were issued in the last six months of 2015. Each noteholder has the right to convert the principal of their note and accrued interest thereon at a conversion price of $0.30 per share or at the noteholder’s option, into equity securities of the Company on the same terms as the last equity transaction completed by the Company prior to each respective conversion date.
     
  (b)

On February 28, 2017, the Company entered into an agreement with two non-affiliated persons to provide $1.6 million of short term secured debt financing in three monthly tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection with this transaction, the Company agreed to issue an origination fee of 3,200,000 warrants. Alexander Capital L.P. acted as Placement Agent and Advisor for this transaction. In August and September 2017, the noteholders exchanged their $1,100,000 of notes that were coming due in August 2017 plus a 30% premium and accrued interest for new six-month notes in the principal amount of $1,501,500. As additional consideration for the exchange, the Company issued 366,667 shares of common stock. The loss recognized on the extinguishment of debt is $960,177.

 

 

 

 11 

 

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 12 convertible notes issued totaling $2,136,500 which included a ratchet provision in the conversion price of $.05 or $.30 or a price equal to the last equity transaction completed by the Company as part of a subscription agreement. The notes have maturity dates ranging from July 31, 2017 – February 27, 2018. The Company also has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 500,000 warrants which included a ratchet provision in the conversion price of $.05 as part of a conversion of preferred AAA shares, and 1,000,000 warrants which included a ratchet provision in the conversion price of $.055 as part of a placement fee related to a note. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of September 30, 2017. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and derivative expense of $1,284,704 during the period ended September 30, 2017. As of September 30, 2017, the fair market value of the derivatives aggregated $821,834 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04%, and a discount rate of 0.00% to 1.47%.

  

In April 2016 through the filing date of this Form 10-Q, the Company issued and sold 12% unsecured promissory notes in the principal amount of $1,025,000, convertible at $0.20 per common share. Upon conversion, the note holders would receive 100% warrant coverage, exercisable at $0.20 per common share over a period of five years with cashless exercise provisions. These notes automatically convert in the event at least $5 million is raised in an equity financing. Prior to the mandatory conversion date, note holders have the option to convert the principal and accrued interest also on the same terms as the mandatory conversion and the Company has the option to prepay. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and initial derivative expense of $1,284,704. As of December 31, 2016, the fair market value of these derivatives aggregated $126,275, using the following assumptions: estimated 0.3 year term, estimated volatility of 279%, and a discount rate of 0.51%. As of September 30, 2017, the fair market value of the derivatives aggregated $1,152,499 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04% and the discount rate of 0.00% to 1.47%

 

The Company raised $700,000 in the third quarter of 2016 from the sale of secured promissory notes in the principal amount of $700,000 from six accredited investors. Each Note was scheduled to be repaid on October 31, 2016, extended to December 15, 2016 but payment was not made. In lieu of interest on the Note, 4,900,000 restricted shares of common stock were issued to the Note Holders. At the option of the Note Holder, each Note shall be convertible at the lower of $.20 per common share or into securities on the same terms of the next completed equity offering of at least $10 million in gross proceeds. In the event the Note is converted into common stock, 100% warrant conversion shall be provided to the Note Holder for each share of common stock issued upon conversion. These warrants will have a term of three years and shall be exercisable at $.20 per common share. Prior to this offering, Thomas Arnost, Executive Chairman, has a secured interest in the amount of $322,000 in the assets of the Company and its subsidiaries. Mr. Arnost has agreed that the investors in this offering will have a pari passu first secured interest with Mr. Arnost in all assets of the Company and its subsidiaries. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $11,071. As of December 31, 2016, the fair market value of these derivatives aggregated $42,945, using the following assumptions: estimated volatility of 279.0%, and a discount rate of 0.51%. As of September 30, 2017, the fair market value of these derivatives aggregated $1,152,499, using the following assumptions: expected volatility of 92.80% to 338.04% and a discount rate of 0.00% to 1.47%.

 

In February 2017, The Company debt holders converted $3,672,000 of notes being converted at 0.05 per share into 73,440,000 shares of common stock.

 

In February 2017, the Company reported that all of its Series AA preferred stock and substantially all of its outstanding debt both secured and unsecured (approximately $12.1 million) have been converted into equity securities of the Company as outlined below. It should be noted that the capital transactions below were based on a premium to the average closing sale price of $0.045 per share during the 60 day period prior to February 08, 2017. The Company had outstanding 1,122,588 shares of newly designated Series AAA preferred stock and $1,350,000 of convertible notes. The convertible notes consist of $1,200,000 of secured notes and $150,000 of unsecured notes. Of the 1,122,588 shares of Series AAA preferred stock outstanding, 240,000 Series AA preferred stock with an original cost basis of $2.4 million were converted into Series AAA preferred stock. The remaining 882,588 shares of Series AAA preferred stock were issued in exchange for the conversion of principal and accrued interest of approximately $11,854,038 of unsecured debt. This conversion resulted in a loss on extinguishment of debt of $2,706,197. The terms of the Series AAA preferred stock can be summarized as follows:

 

The price of each preferred share shall be, at the option of the holder, convertible into 100 shares of Common Stock. If the preferred shares are converted, the subscriber will then receive 100% warrant coverage, with each warrant exercisable at $.05 per share with a cash payment to the Company through the close of business on December 31, 2019. The preferred shares have no voting or other preferences except as required by law other than the right of conversion described above and a liquidation preference equal to $.01 per share.

 

 

 

 12 

 

 

In February 2017, Thomas Arnost, our Executive Vice Chairman, and another principal stockholder agreed to convert letters of credit in the principal amount of $2,700,000 and $322,000 of secured debt into shares of common stock at the then marketing price of $.05 per share. Accrued interest on these obligations were either previously converted into our common stock or were upon conversion of the principal, converted into common stock at the fair market value of our common stock at each interest accrual date.

 

Between August and September 2017, the Company issued $750,000 of secured notes due in six months to various investors. The notes are convertible at $.05 per share through the maturity date, subject to adjustment in the event of default. A total of 750,000 origination shares of common stock were issued to the noteholders. Thomas Arnost, Chairman of the Company, invested $100,000 in the loan transaction.

 

NOTE 4: STOCKHOLDERS' DEFICIT

  

In December 2015, the Company sold 200,000 shares of its Series AA Preferred Stock at a purchase price of $10 per share and raised $2 million. Each share of Preferred Stock is convertible into 50 shares of Common Stock at an effective conversion price of $.20 per share of Common Stock. The Preferred Stockholder has anti-dilution protection rights through December 31, 2016. In the first quarter of 2016, the Company sold an additional 40,000 shares of its Series AA Preferred Stock and raised $400,000. In 2017, the Company exchanged 240,000 shares of AA preferred stock for AAA preferred stock. Also in 2017, the Company issued an additional 882,588 shares of AAA preferred stock in exchange for outstanding debt and accrued interest. The AAA Preferred shares at a purchase price of $10 per share shall be, at the option of the holder, convertible into 100 shares of Common Stock. If the preferred shares are converted, the subscriber will then receive 100% warrant coverage, with each warrant is exercisable at $0.05 per share with an expiration date of December 31, 2019. The preferred shares have no voting or other preferences except as required by law other than the right of conversion described above and a liquidation preference equal to $.01 per share. During the six months ended June 30, 2017, 5,000 AAA Preferred shares were converted to 500,000 shares of common stock.

 

Between February 2017 and September 30, 2017, preferred stockholders owning 15,000 shares of Series AAA Preferred Stock have exchange their preferred shares for 1,500,000 common shares and Warrants to purchase an equivalent amount of shares.

 

Shares issued for services

 

During the quarter ended March 31, 2017, the Company issued 3,800,000 common shares, at $0.06 to $0.13 per share, valued at $314,310. During the second and third quarters of 2017, the Company issued no common shares for services.

 

Shares issued for accrued interest

 

During the quarter ended March 31, 2017, the Company issued 3,919,620 common shares, at $0.04 to $0.05 per share, valued at $194,790 and AAA preferred shares of 47,588, at $10.00 per share, valued at $475,841. No shares were issued for interest during the quarter ended June 30, 2017. During the quarter ended September 30, 2017 the Company issued 32,544 common shares, at $0.09 per share, valued at $3,074.

 

During the year entered December 31, 2016, the Company issued 1,000,000 common shares in satisfaction of back rent owed the landlord in the sum of $57,157. The shares were valued at $20,000 and a gain on settlement of debt was recorded of $36,177.

 

During the year ended December 31, 2016, the Company issued 11,908,335 common shares, at $0.05 per share, valued at $594,417 for the exercise of outstanding warrants. During the quarter ended March 31, 2017, the Company issued 1,916,667 shares, at $0.05 per share, valued at $95,834 for cash for the exercise of outstanding warrants.

 

See Note 3 above for a discussion of certain stock transactions.

 

NOTE 5: STOCK-BASED COMPENSATION

 

Compensation costs related to share-based payment transactions, including employee stock options, are recognized in the financial statements utilizing the straight-line method for the cost of these awards.

 

The Company's results for the three months ended September 30, 2017 and 2016 include employee share-based compensation expense totaling $91,300 and $163,500, respectively. The Company’s results for the nine-month periods ended September 30, 2017 and 2016 include share based compensation expense totaling approximately $516,600 and $512,900, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within selling, general and administrative expenses. No income tax benefit has been recognized in the statement of operations for share-based compensation arrangements due to a history of operating losses.

 

 

 

 13 

 

 

The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2017   2016   2017   2016 
Employee stock-based compensation - option grants  $91,271   $142,040   $394,129   $437,699 
Employee stock-based compensation - stock grants                
Non-Employee stock-based compensation - option grants       21,500    11,500    75,250 
Non-Employee stock-based compensation - stock grants                
Non-Employee stock-based compensation-stock warrant           111,000     
Total  $91,271   $163,540   $516,629   $512,949 

 

NOTE 6: STOCK OPTION PLAN

 

During Fiscal 2005, the Company established, and the stockholders approved, an Employee Benefit and Consulting Services Compensation Plan (the "2005 Plan") for the granting of up to 2,000,000 non-statutory and incentive stock options and stock awards to directors, officers, consultants and key employees of the Company. On June 9, 2005, the Board of Directors amended the Plan to increase the number of stock options and awards to be granted under the Plan to 4,000,000. During Fiscal 2009, the Company established a plan of long-term stock-based compensation incentives for selected Eligible Participants of the Company covering 4,000,000 shares. This plan was adopted by the Board of Directors and approved by stockholders in October 2009 and shall be known as the 2009 Employee Benefit and Consulting Services Compensation Plan (the "2009 Plan"). In September 2013, the Company's stockholders approved an increase in the number of shares covered by the 2009 Plan to 10,000,000. In February 2015, the board approved, subject to stockholder approval within one year, an increase in the number of shares under the 2009 Plan to 20,000,000 shares. (The 2005 and 2009 Plans are collectively referred to as the "Plans" and the Company has a combined 14,000,000 shares, which will increase to 24,000,000 shares upon stockholder approval of the increase in the 2009 Plan, available for issuance under the Plans.)

 

In the first quarter of 2016, the Board approved and stockholders ratified a 2016 Employee Benefit and Consulting Services Compensation Plan covering 10,000,000 shares (the “2016 Plan”) and approving moving all options which exceeded the 2009 Plan limits to the 2016 Plan.

 

All stock options under the Plans are granted at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying periods and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to the provisions of ASC 718 "Stock Compensation", previously Revised SFAS No. 123 "Share-Based Payment" ("SFAS 123 (R)"). The fair values of these restricted stock awards are equal to the market value of the Company's stock on the date of grant, after taking into certain discounts. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously, such assumptions were determined based on historical data.

 

The weighted average assumptions made in calculating the fair values of options granted during the three and nine months ended September 30, 2017 and 2016 are as follows:

 

   Three Months Ended
September 30
   Nine Months Ended
June 30
 
   2017   2016   2017   2016 
Expected volatility   0.00%    131.39%    146.77%    134.23% 
Expected dividend yield                
Risk-free interest rate   0.00%    0.97%    1.89%    1.24% 
Expected term (in years)   0.00%    5.00    5.00    5.00 

 

 

 

 14 

 

 

   Share   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
Outstanding, January 1, 2017   18,315,001    0.41    5.14   $5,625 
Granted   250,000    0.05    4.3     
Exercised                
Cancelled & Expired   (1,050,000)            
                     
Outstanding, September 30, 2017   17,515,001    0.39    4.68   $2,000 
                     
Options exercisable, September 30, 2017   17,037,918    0.39    4.65   $2,000 

 

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2017 and 2016 was $0.05 and $0.10, respectively.

 

The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2017 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the shares that had exercise prices, that were lower than the $0.04 closing price of the Company's common stock on September 30, 2017.

 

As of September 30, 2017, the fair value of unamortized compensation cost related to unvested stock option awards was $290,783.

 

The weighted average assumptions made in calculating the fair value of warrants granted during the three and nine months ended September 30, 2017 and 2016 are as follows:

 

   Three Months Ended
September 30
   Nine Months Ended
September 30
 
   2017   2016   2017   2016 
Expected volatility   0.00%    0.00%    151.49%    0.00% 
Expected dividend yield                
Risk-free interest rate   0.00%    0.00%    1.88%    0.00% 
Expected term (in years)   0.00        4.75     

   

    Share   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
 Outstanding, January 1, 2017    21,252,734   $0.48    1.40   $ 
 Granted    5,700,000   $0.07    3.50     
 Exercised    (1,916,667)            
 Expired    (3,492,221)            
 Outstanding, September 30, 2017    21,543,846   $0.37    1.51     
                       
 Warrants exercisable, September 30, 2017    21,543,846   $0.37    1.51   $ 

 

 

 

 15 

 

 

NOTE 7: COMMITMENTS AND CONTINGENCIES

 

COMMITMENTS –

 

In April 2011, we entered into our agreement with Simon Property Group, which agreement was amended first in September 2013 and then in July 2014. This second amendment provides for us to expand our location-based mobile mall network footprint to about 195 current Simon malls across the United States. Our agreement with Simon currently expires December 31, 2017. Simon is entitled to receive fees from us equal to the greater of a pre-set per mall fee or a percentage of revenues derived from within the Simon Mall network. The revenue share agreement in which Simon participates will exceed the minimum annual mall fees if the Company has generated revenues within the Simon network of about $15 million or more in a calendar year. Our agreement with Simon requires the company to maintain letters of credit for each calendar year under the agreement represented by the minimum amount of fees due for such calendar year. For 2015, the minimum fees of $2.7 million has been secured through two bank letters of credit, one of which was issued in the amount of $1,350,000 utilizing the funds of a non-affiliated stockholder and the second letter of credit was obtained in the same amount through the funds of Thomas Arnost, our Executive Chairman. In the event Simon draws down upon either letter of credit, we have until the next minimum payment due date (approximately 90 days) after the draw down to obtain replacement letters of credit. Each person who secured our letters of credit has the opportunity to notify us that they wish to turn the cash funds securing the letters of credit over to us and to convert such funds into Common Stock currently at a conversion price of $.20 per share. Also, each person who issued the letter of credit is receiving quarterly, while the letters of credit are outstanding, options to purchase 125,000 shares of Common Stock, exercisable at the prevailing market price per share on the date of grant and interest at the rate of 8% per annum on the monies that they have had to set aside in their bank accounts and are unable to have access to such monies. In April, July and October 2016 and January and April 2017, Simon drew down on each bank letter of credit for an aggregate of $1,350,000 owed to each letter of credit provider, prior to terminating the agreement in September 2017 for failure to pay their agreed upon fees. During the first quarter of 2017, the Letter of Credit holders converted the entire $2,700,000 into 54,000,000 shares of Common Stock.

 

Pursuant to a master agreement effective August, 2015, we entered into an agreement with PREIT pursuant to which we have the right to install our Mobi-Beacons and to send information across the air space of the common areas of our PREIT mall network, which will include approximately 27 malls in select states in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior common areas of these malls is exclusive. Under our agreement between us and PREIT, PREIT is entitled to an agreed upon revenue share over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is not attained for any measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days prior written notice. PREIT may also terminate the agreement if it determines that Mobiquity’s installed equipment is not adequate and/or provides a negative user experience for the visitors to the PREIT malls. The agreement also provides for PREIT to adjust the number of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the malls.

 

Pursuant to a master agreement entered into in 2015, we entered into an agreement with Rouse pursuant to which we have the right to install our Mobi-Beacons to send information across the air space of the common areas of our Rouse mall network, which will include approximately 30 malls in select states in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior common areas of these malls is exclusive. Under our agreement between us and Rouse, Rouse is entitled to an agreed upon revenue share over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is not attained for any measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days prior written notice. Either party may also terminate the agreement due to a material breach which is not cured within 30 days of written notice. Also, Rouse upon at least 60 days written notice to us prior to the end of the second contract year, may terminate the agreement with respect to any participating property for any reason at the end of the second contract year. The agreement also provides for Rouse to adjust the number of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the malls.

 

In February 2012, the Company entered into a lease agreement for new executive office space of approximately 4,200 square feet located at 600 Old Country Road, Suite 541, Garden City, NY 11530. The lease agreement was for 63 months, commencing April 2012 and expired in June 2017. The annual rent under this office facility for the first year was about $127,000, including electricity, subject to an annual increase of 3%. The Company owes approximately $57,504 under this lease which is currently in collections.

 

Our lease for approximately 2,000 square feet of space at an annual cost of approximately $30,100 (inclusive of taxes) at 1105 Portion Road, Farmingville, NY 11738 expired in November 2013. We currently lease this property on a month to month basis for approximately $2,500 per month beginning December 2014, with a 5% increase in rent each year.

 

 

 

 16 

 

 

In March of 2014, we entered into a month-to-month lease agreement for approximately 400 square feet of office space located in Manhattan, NY at a monthly cost of $3,700. In May of 2015 we moved to a larger location with the same landlord on a month to month basis for $7,500 per month.

 

In June of 2017, we entered into a month-to-month lease agreement for approximately 1,600 square feet of office space located in Uniondale New York at a monthly cost of $6,500 for the months of July and August 2017.

 

Minimum future rentals under non-cancelable lease commitments are as follows:

 

YEARS ENDING DECEMBER 31,     
 2017     
 2018     
 2019 and thereafter     
     $ 

 

Rent and real estate tax expense was approximately $1,090,118 and $2,801,090 for the nine months ended September 30, 2017 and 2016, of which $969,521 and $2,634,837 were related to mall rents, respectively. Rent and real estate tax expense was approximately $36,499 and $886,312 for the three months ended September 30, 2017 and 2016, of which $0.00 and $825,218 were related to mall rents, respectively.

 

EMPLOYMENT CONTRACTS –

 

Michael D. Trepeta and Dean L. Julia

 

On March 1, 2005, the Company entered into employment contracts with two of its officers, namely, Dean L. Julia and Michael D. Trepeta. The employment agreements provide for minimum annual salaries plus bonuses equal to 5% of pre-tax earnings (as defined) and other perquisites commonly found in such agreements. In addition, pursuant to the employment contracts, the Company granted the officers options to purchase up to an aggregate of 400,000 shares of common stock.

 

On August 22, 2007, the Company approved a three-year extension of the employment contracts with two of its officers expiring on February 28, 2011. The employment agreements provided for minimum annual salaries with scheduled increases per annum to occur on every anniversary date of the contract and extension commencing on March 1, 2008. A signing bonus of options to purchase 150,000 shares granted to each executive were fully vested at the date of the grant and exercisable at $1.20 per share through August 22, 2017. Ten year options to purchase 50,000 shares of common stock are to be granted at fair market value on each anniversary date of the contract and extension commencing March 1, 2008. Termination pay of one year base salary based upon the scheduled annual salary of each executive officer for the next contract year, plus the amount of bonuses paid (or entitle to be paid) to the executive for the current fiscal year of the preceding fiscal year, whichever is higher.

 

On April 7, 2010, the Board of Directors approved a five-year extension of the employment contract of Dean L. Julia and Michael D. Trepeta to expire on March 1, 2015. The Board approved the continuation of each officer’s current salary and scheduled salary increases on March 1st of each year. The Board also approved a signing bonus of stock options to purchase 200,000 shares granted to each officer which is fully vested at the date of grant and exercisable at $.50 per share through April 7, 2020; ten-year stock options to purchase 100,000 shares of Common Stock to be granted to each officer at fair market value on each anniversary date of the contract and extension thereof commencing March 1, 2011; and termination pay of one year base salary based upon the scheduled annual salary of each executive officer for the next contract year plus the amount of bonuses paid or entitled to be paid to the executive for the current fiscal year or the preceding fiscal year, whichever is higher. In the event of termination, the executives will continue to receive all benefits included in the employment agreement through the scheduled expiration date of said employment agreement prior to the acceleration of the termination date thereof.

 

In July 2012, the Company approved and in January 2013 the Company implemented amending the employment agreements of Messrs. Julia and M. Trepeta to expire on February 28, 2017, subject to an automatic one- year renewal on March 1, 2013 and on each March 1st thereafter, unless the Employment Agreement is terminated in accordance with its terms on or before December 30th of the prior calendar year. In the event of termination without cause, the executives will continue to receive all salary and benefits included in the employment agreement through the scheduled expiration date of said employment agreement prior to the acceleration of the termination date thereof, plus one-year termination pay.

 

 

 

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On May 28, 2013, the Company approved amending the employment agreements of Messrs. Julia and Trepeta to provide that each officer may choose an annual bonus equal to 5% of pre-tax earnings for the most recently completed year before deduction of annual bonuses paid to officers or, in the event majority control of the Company is acquired by a person or a group of persons during the prior fiscal year, the officer may choose to receive the aforementioned bonus or 1% of the control consideration paid by acquirer(s) to acquire majority control of the Company.

  

Separation Agreement

 

In April 2017, Michael Trepeta entered into a separation agreement with the Company pursuant to which he resigned as an executive officer and director. There is currently a vacancy in the Board of Directors of the Company. After his resignation, the Board changed Dean Julia’s title from Co-Chief Executive Officer to Chief Executive Officer.

 

Pursuant to Michael Trepeta’s separation agreement, Mr. Trepeta is entitled to the following benefits:

 

  · Six months’ coverage under the Company’s existing director/officer insurance policy;
  · Indemnification per existing employment agreement;
  · Expense reimbursement through May 31, 2017;
  · All options vested shall continue until their normal expiration date; and
  · Mutual releases.

 

Thomas Arnost

 

In December 2014, we entered into a three-year employment agreement with Thomas Arnost serving as Executive Chairman of the board. Mr. Arnost receives a monthly salary of $10,000 plus an annual grant of options for serving on the board of directors. In the event of his termination, by Mr. Arnost or by the company for cause, Mr. Arnost will receive his pay through the termination date. In the event that Mr. Arnost is terminated without cause, he shall be entitled to receive his salary paid through the end of the term of his agreement. Mr. Arnost may terminate the agreement at any time by giving three months’ prior written notice to our board of directors. Mr. Arnost will also be entitled to indemnification against all claims, judgments, damages, liabilities, costs and expenses (including reasonably legal fees) arising out of, based upon or related to his performance of services to us, to the maximum extent permitted by law.

  

Sean Trepeta

 

In December 2014, Mobiquity Networks entered into an employment agreement with Sean Trepeta, to serve as President of Mobiquity Networks as an employee at will. Mr. Trepeta, as a full-time employee, is to be paid a salary at the rate of $20,000 per month. Upon the execution of the agreement, he received 10-year options to purchase 1,500,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015, he will be entitled to a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and a further bonus of $125,000 for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12 million, it being understood that any revenues which do not have a 30% margin shall not count toward these totals. All options granted to Mr. Trepeta will become immediately vested in the event of a change in control of our Company or sale of substantially all of our assets. In the event we terminate Mr. Trepeta without cause, after six months of continued employment under the employment agreement, Mr. Trepeta is entitled to receive three months’ severance pay.

 

Paul Bauersfeld

 

In December 2014, we entered into an employment agreement with Paul Bauersfeld, our Chief Technology Officer, who is an employee at will. Mr. Bauersfeld, as a full-time employee, is to be paid a salary at the rate of $25,000 per month. Upon the execution of the agreement, he received 10-year options to purchase 1,000,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015, he will be entitled to a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and a further bonus of $125,000 for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12 million, it being understood that any revenues which do not have a 30% margin shall not count toward these totals. The foregoing compensatory arrangements with Mr. Bauersfeld is in addition to the non-statutory stock options to purchase 2,600,000 shares of our common stock previously granted to Mr. Bauersfeld. All options granted to Mr. Bauersfeld will become immediately vested in the event of a change of control of our company or sale of substantially all of our assets. In the event we terminate Mr. Bauersfeld without cause. Mr. Bauersfeld is entitled to receive six months’ severance pay.

 

Sean McDonnell

 

Sean McDonnell, our Chief Financial Officer, is an employee at will and is currently receiving a salary of $132,000 per annum.

 

 

 

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TRANSACTIONS WITH MAJOR CUSTOMERS —

 

The Company sells its branded merchandise to a geographically diverse group of customers, performs ongoing credit evaluations of its customers and generally does not require collateral. During the three and nine months ended September 30, 2017 two customers accounted for approximately 41% and 40%, respectively, of net revenues and for the three and nine months ended September 30, 2016, a customer accounted for approximately 41% and 41%, respectively, of net revenues. The Company holds on hand certain items that are ordered on a regular basis.

 

NOTE 8: DISCONTINUED OPERATION

 

In October 2017, the Company sold its Branded Merchandise segment. Management committed to a plan to sell this segment early September 2017, following a strategic decision to place greater focus on the Group’s key competencies – i.e. next generation mobile location data. By providing precise unique, at-scale location based data insights on consumer’s real-world behavior and trends for use in marketing and research.

 

 

A.Results of discontinued operation

 

   September 30, 2017   September 30, 2016 
         
Revenue  $1,764,513   $1,042,790 
Expenses   2,001,757    1,645,453 
(Loss) from discontinued operation, net  $(237,244)  $(602,663)

 

B.Cash flows from (used in) discontinued operation

 

   September 30, 2017   September 30, 2016 
         
Net cash used in operating activities  $(237,244)  $(602,663)
Net cash from investing activities  $   $ 
Net increase (decrease) cash flows for the period  $(202,470)  $(650,177 )

 

C.Effect of disposal on the financial position of the Group

 

      September 30, 2017    December 31, 2016  
              
Property, equipment and intangibles, net   $ (3,043 )  $(5,933 )
Inventories, net     (107,960 )   (79,291 )
Token liabilities     276,853     314,643  
Net assets and liabilities   $ 165,850    $229,419  
Consideration received, satisfied in cash   $ 150,000    $150,000  

 

NOTE 9: SUBSEQUENT EVENTS

 

There are no subsequent events required to be disclosed in the Notes to Financial Statements through the date of the report, except as follows: On October 17, 2017, the Company received relief of certain liabilities and cash consideration of $150,000 from the sale of specific assets fixed and intangibles of Ace Marketing & Promotions, Inc. relating to its promotional products distribution company. These assets were sold to a group represented by a principal of one of Ace’s customers. The sale also included various unpaid inventory, which was offset by certain liabilities. As a result of the asset sale of Ace, the Company is able to focus all of its management and employee effort and financial resources in developing the business of Mobiquity Networks, Inc., its wholly-owned subsidiary.

 

 

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

The information contained in this Form 10-Q and documents incorporated herein by reference are intended to update the information contained in the Company's Form 10-K for its fiscal year ended December 31, 2016 which includes our audited financial statements for the year ended December 31, 2016 and such information presumes that readers have access to, and will have read, the "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors" and other information contained in such Form 10-K and other Company filings with the Securities and Exchange Commission ("SEC").

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, and actual results could be significantly different than those discussed in this Form 10-Q. Certain statements contained in Management's Discussion and Analysis, particularly in "Liquidity and Capital Resources," and elsewhere in this Form 10-Q are forward-looking statements. These statements discuss, among other things, expected growth, future revenues and future performance. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. The forward-looking statements are subject to risks and uncertainties including, without limitation, the following: (a) changes in levels of competition from current competitors and potential new competition, (b) possible loss of customers, and (c) the company's ability to attract and retain key personnel, (d) The Company's ability to manage other risks, uncertainties and factors inherent in the business and otherwise discussed in this 10-Q and in the Company's other filings with the SEC. The foregoing should not be construed as an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by us. All forward-looking statements included in this document are made as of the date hereof, based on information available to the Company on the date thereof, and the Company assumes no obligation to update any forward-looking statements.

 

Company Overview

 

Mobiquity Technologies, Inc., a New York corporation (the “Company”), is the parent company of two operating subsidiaries; Mobiquity Networks, Inc.(“Mobiquity Networks”) and Ace Marketing & Promotions, Inc. (“Ace Marketing”). The Company’s wholly-owned subsidiary, Mobiquity Networks has evolved and grown from a mobile advertising technology company focused on Driving Awareness and Foot-traffic throughout its indoor mall-based beacon network, into a next generation mobile location data and marketing company. Mobiquity Networks provides precise unique, at-scale location-based data and insights on consumer’s real world behavior and trends for use in marketing and research. With our combined data sets of beacon data, and first party location data via our advanced Software Development Kit (“SDK”) utilizing multiple geo-location technologies, Mobiquity Networks provides one of the most accurate and scaled solution for mobile data collection and analysis. Mobiquity Networks is seeking to create several new revenue streams from the mobile data collection and analysis, including, but not limited to; Push Notification Campaigns, Mobile Audiences & Segments, real-time Data Licensing, Attribution Reporting and Custom Research. The Company has also reduced expenses due to the termination of certain Mall Developer Agreements.

 

Ace Marketing is our legacy marketing and promotions business which provided integrated marketing services to our commercial customers. On October 17, 2017, the Company received cash consideration of $150,000 from the sale of the intangible assets of Ace Marketing & Promotions, Inc. relating to its promotional products distribution company. These assets were sold to a group represented by a principal of one of Ace’s customers. The sale also included various unpaid inventory, which was offset by certain liabilities. As a result of the asset sale of Ace, the Company is able to focus all of its management and employee effort and financial resources in developing the business of Mobiquity Networks, Inc., its wholly-owned subsidiary.

 

 

 

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Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.

  

Revenue Recognition – Mobiquity Networks. Revenue is recognized with the billing of an advertising contract or data sale. The customer signs a contract directly with us for an advertising campaign with mutually agreed upon term and is billed on the start date of the advertising campaign, which are normally in short duration periods. The second type of revenue is through the licensing of our data. Revenue from data can occur in two ways; the first is a direct feed, which is billed at the end of each month. The second way is through the purchasing of audience segments. When an audience segment is purchased, we bill the buyer upon delivery, which is usually 1-2 days for the order date.

  

Allowance For Doubtful Accounts. We are required to make judgments based on historical experience and future expectations, as to the realizability of our accounts receivable. We make these assessments based on the following factors: (a) historical experience, (b) customer concentrations, customer credit worthiness, (d) current economic conditions, and (e) changes in customer payment terms.

 

Accounting For Stock Based Compensation. Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period. The company uses the Black-Sholes option-pricing model to determine fair value of the awards, which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the company’s common stock price over the expected term (“volatility”) and the number of options for which vesting requirements will not be completed (“forfeitures”). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statements of operations.

 

Plan of Operation

 

Mobiquity Networks derives its revenue utilizing the revenue streams mentioned above. All of the products used to derive revenue for the Company are reliant on the collection of data. To achieve management’s revenue goals moving forward, we have developed a strategy to increase the two main driving forces behind our data collection. One strategy is to increase the total number of users seen on a monthly basis (“MAU”), and the second strategy is to increase the total number of locations (Places) available to see our MAU’s visit over the same time period. We are currently seeing approximately 25,000,000 unique mobile devices (MAU) monthly. The ability to see and collect the data required from these unique devices comes from the installation of our proprietary Software Development Kit (SDK) or a direct server-to-server connection into third party mobile applications (Apps). To continue to grow the total number of unique devices we can see on a monthly basis, we need additional server-to-server connections have our SDK installed in more third party Apps. We believe our unique offering to potential App partners gives us a competitive advantage over others in the industry. The task of partnering with third party Apps for installation of our SDK is handled internally by our business development team.

 

As of March 31, 2017, we had approximately 200,000 Places in our proprietary Places database, and that number has increased to approximately 4,000,000 Places during the third quarter 2017, thus exponentially increasing the amount of data we collect. We have been able to steadily increase the number of locations available in our Places database through the use of both open source and proprietary technologies. The task of growing our Places database is handled by our internal technology team. The Company currently utilizes both internal and outsourced resources to market and sell its product offerings. Management intends to hire additional sales personnel as working capital permits.

 

 

 

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RESULTS OF OPERATIONS

 

The following table sets forth certain selected unaudited condensed statement of operations data for the periods indicated in dollars and as a percentage of total net revenues. The following discussion relates to our results of operations for the periods noted and is not necessarily indicative of the results expected for any other interim period or any future fiscal year. In addition, we note that the period-to-period comparison may not be indicative of future performance. (It should be noted that results of operations will be impaired in future operating periods by the fourth quarter sale of Ace assets as described above.)

 

   Three Months Ended
September 30
 
   2017   2016 
Revenue  $202,020   $42,562 
Cost of Revenues  $154,124   $34,603 
Gross Profit  $47,896   $7,959 
Selling, General and Administrative Expenses  $791,600   $1,773,670 
(Loss) from Operations  $(743,704)  $(1,765,711)

 

We generated revenues of $202,020 in the third quarter of 2017 compared to $42,562 in the same period of the prior year. Revenues from our Mobiquity Networks devices consisted of $202,020, compared to $42,562 in the same period of the prior year, of our consolidated revenues, a 475% increase over the same period in 2016. In future reporting periods, we anticipate our revenues increasing in our Mobiquity Networks subsidiary due to the data that can be derived therefrom and the expectation that both marketers and researchers will begin to utilize our data. See “Plan of Operation.”

  

Cost of revenues was $154,124 or 76% of revenues in the third quarter of 2017 compared to $34,603 or 81% of revenues in the same fiscal period of the prior year. The increase in cost of revenues of $119,521 in 2017 is related to the establishment of our Mobiquity technology enhancement activities.

 

Gross profit was $47,896 for the third quarter of 2017 compared to $34,603 in the same fiscal period of the prior year. Gross profits will vary period-to-period depending upon a number of factors including the mix of items sold and the volume of product sold. Also, it is our practice to pass freight costs on to our customers with low to no profit margin. As revenue from Mobiquity Networks increases, it is expected that our margins will increase significantly.

 

Selling, general, and administrative expenses were $791,600 for the third quarter of 2017 compared to $1,773,670 in the comparable period of the prior year, a decrease of approximately $982,070. Reduction in such operating costs include payroll, and related expenses, non-cash stock based compensation costs and rents.

 

The net operating loss for the third quarter of 2017 was $(743,704) as compared to $(1,765,711) for the comparable period of the prior year. The decrease in operating loss is attributable to the increase in Mobiquity Networks revenue, reduction in payroll, and rents.

 

No benefit for income taxes is provided for in the reported periods due to the full valuation allowance on the net deferred tax assets. Our ability to be profitable in the future is dependent upon the successful introduction and usage of our proximity marketing services.

 

 

 

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Nine Months Ended September 30, 2017 versus Nine Months Ended 2016

 

   Nine Months Ended
September 30
 
   2017   2016 
Revenue  $384,011   $113,484 
Cost of Revenues  $560,155   $122,913 
Gross Loss  $(176,144)  $(9,419)
Selling, General and Administrative Expenses  $3,816,557   $5,929,691 
(Loss) from Operations  $(3,992,701)  $(5,939,110)

  

We generated revenues of $384,011 in the first nine months of 2017 compared to $113,494 in the same period of the prior year. As our data sales are now being expanded, at the current time, revenues from the use of Mobiquity data in the same period of the prior year, has increased 338% over the same period in 2016. In future reporting periods, we anticipate our revenues increasing in our Mobiquity Networks subsidiary due to the data that can be derived therefrom and the expectation that advertisers will begin to utilize our data. See “Plan of Operation.”

  

Cost of revenues was $560,155 or 146% of revenues in the first nine months of 2017 compared to $122,913 or 108% of revenues in the same fiscal period of the prior year. The increase in cost of revenues of $437,242 in 2017 is related to the establishment of our Mobiquity technology enhancements.

 

Gross loss was $176,144 for the first nine months of 2017 or 146% of net revenues compared to $9,419 in the same fiscal period of the prior year or 108% of revenues. Gross profits will vary period-to-period depending upon a number of factors including the mix of items sold and the volume of product sold. Also, it is our practice to pass freight costs on to our customers with low to no profit margin. As marketing and research revenue from the use of our Mobiquity devices increases, it is expected that our margins will increase significantly.

  

Selling, general, and administrative expenses were $3,816,557 for the first nine months of 2017 compared to $5,929,691 in the comparable period of the prior year, a decrease of approximately $2,113,134. Such operating cost reductions include payroll and related expenses, and rents.

 

Loss from operations for the first nine months of 2017 was $(3,992,701) as compared to $(5,939,110) for the comparable period of the prior year. The decrease in operating loss is attributable to the focused effort in creating and streamlining the infrastructure required to move forward with our location-based mobile advertising network, to provide information technology support.

 

No benefit for income taxes is provided for in the reported periods due to the full valuation allowance on the net deferred tax assets. Our ability to be profitable in the future is dependent upon the successful introduction and usage of our proximity marketing services.

 

Liquidity and Capital Resources

 

The Company had cash and cash equivalents of $213,268 at September 30, 2017. Cash used in operating activities for the nine months ended September 30, 2017 was $3,232,160 This resulted primarily from a net loss of $8,953,788 offset by stock based compensation of $516,629, depreciation and amortization of $17,694, decrease in accounts receivable of $205,026 initial derivative expense of $1,284,704 and an amortization of debt discounts of $2,061,307 and a change in derivatives of $2,892,291, gain on settlement of debt $3,666,374, increase in prepaid expenses and other assets of $7,654 and an increase of accounts payable and accrued expenses of $244,530. Cash flow from financing activities of $3,238,447 resulted from the proceeds from the issuance of the Company's convertible notes of $2,378,000 and the issuance of common stock $311,250, proceeds received from the exercise of warrants $95,834 and the proceeds from the collection of stock subscription receivable of $456,503.

 

 

 

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The Company had cash and cash equivalents of $224,974 at September 30, 2016. Cash used in operating activities for the nine months ended September 30, 2016 was $4,742,828 This resulted primarily from a net loss of $7,521,794 offset by stock based compensation of $512,949, depreciation and amortization of $112,392, decrease in accounts receivable of $119,202 and a decrease in Inventory of $25,430 and an initial derivative expense of $565,780 and an amortization of debt discounts of $1,878,002 and a change in derivatives of $2,201,696, decrease in prepaid expenses and other assets of $574,108 and an increase of accounts payable and accrued expenses of $1,002,523. The Company had an increase in investing activities of $257,575 with the purchase of equipment and expansion to the network platform in new and existing mall and other locations. Cash flow from financing activities of $3,240,376 resulted from the proceeds from the issuance of the Company's preferred stock $400,000 and use of the letter of credit and securing promissory notes totaling $2,840,376.

 

Our Company commenced operations in 1998 and was initially funded by our three founders, each of whom has made demand loans to our Company that have been repaid or converted to equity. Since 1999, we have relied primarily on equity financing from outside investors to supplement our cash flow from operations.

  

We anticipate that our future liquidity requirements will arise from the need to finance our accounts receivable and inventories, hire additional sales persons, capital expenditures and possible acquisitions. The primary sources of funding for such requirements will be cash generated from operations, raising additional capital from the sale of equity or other securities and borrowings under debt facilities which currently do not exist. We believe that we can generate sufficient cash flow from these sources to fund our operations for at least the next twelve months. In the event we should need additional financing, we can provide no assurances that we will be able to obtain financing on terms satisfactory to us, if at all.

 

Recent Financings

 

In 2015, 2016, and 2017 we have completed the various financing summarized below.

 

Date   Dollar Amount     # of Securities Sold
           
January 2015   $ 500,000     Issued two-year promissory note in the principal amount of $500,000
February 2015   $ 850,000     Issued two-year promissory note in the principal amount of $850,000
March 2015   $ 500,000     Issued 1,666,667 common shares and a like number of warrants
April 2015   $ 1,710,000     Issued 5,700,000 common shares and a like number of warrants
May 2015   $ 510,000     Issued 1,700,000 common shares and a like number of warrants
August/October 2015   $ 3,675,000     Issued promissory notes in the principal amount of $3,675,000 and 3,675,000 shares of restricted common stock and warrants to purchase an additional 3,675,000 shares of restricted common stock

December 2015-

March 2016

  $ 2,400,000     Issued 240,000 shares of preferred stock convertible into 12,000,000 shares of common stock with anti-dilution protection for 2016
April – May 2016   $ 1,025,000     Issued convertible promissory notes in the principal amount of $1,025,000, convertible at $.20 per share with 100% warrant coverage.
Third Quarter 2016   $ 700,000     Issued short term convertible promissory notes in the principal amount of $700,000 and prepaid interest of 4,900,000 common shares.
Fourth Quarter 2016   $ 595,417     Exercise of outstanding warrants/options at $.05 per share and issuance of approximately 11,908,335 shares of common stock.
First Quarter 2017   $ 1,100,000     Issued six-month promissory notes in principal amount of $1,100,000.
Second Quarter 2017   $ 500,000     Issued six-month promissory note in principal amount of $500,000.

Third Quarter 2017

   $ 750,000     Issued six-month promissory note in principal amount of $750,000 plus an additional $1,501,000 in notes issued in exchange for notes of the original principal amount of $1,100,000 issued in first quarter of 2017. Also issued an aggregate of 750,000 shares of common stock as origination shares in connection with issuances of said notes.

 

 

 

 

 24 

 

 

First Nine Months 2017 Loan Agreements and Certain Transactions

 

Prior to the February 28, 2017 sale of secured debt, the Company’s holders of all of its Series AA preferred stock and substantially all of its outstanding debt both secured and unsecured (approximately $14.5 million) have been converted into equity securities of the Company as outlined below. It should be noted that the capital transactions below were based on a premium to the average closing sale price of $0.045 per share during the 60-day period prior to February 08, 2017.

 

On February 28, 2017, the Company entered into an agreement with a two non-affiliated persons to provide $1.6 million of short term secured debt financing in three monthly tranches, with the first monthly tranche in the amount of $600,000. The Company will issue in connection with each tranche, six-month secured convertible promissory note(s). Each note is initially convertible at $.05 per share. Any prepayment of the note requires the payment of a 25% premium and guaranteed interest for the entire six-month note. In the case of default, the amount owed by the Company will become 130% of the outstanding principal and accrued interest thereon. The Conversion Price will reset in the event that the note is unpaid and in default on the sixth month anniversary date of the issuance of the note. In connection with this transaction, the Company agreed to issue an origination fee of 1,600,000 shares of restricted common stock. Alexander Capital L.P. acted as Placement Agent and Advisor for this transaction.

 

As of June 30, 2017, the Company has outstanding 192,421,390 shares of common stock, 1,117,588 shares of newly designated Series AAA preferred stock and $1,850,000 of convertible notes. The convertible notes consist of $1,700,000 of secured notes and $150,000 of unsecured notes. Of the 1,117,588 shares of Series AAA preferred stock outstanding, 240,000 Series AA preferred stock with an original cost basis of $2.4 million were converted into Series AAA preferred stock. The remaining 877,588 shares of Series AAA preferred stock were issued in exchange for the conversion of principal and accrued interest of approximately $11,854,038 of unsecured debt. The terms of the Series AAA preferred stock can be summarized as follows:

 

The price of each preferred share may be convertible into common stock with an equivalent purchase price of $.10 per common share. If the preferred shares are converted, the subscriber will then receive 100% warrant coverage, with each warrant exercisable at $.05 per share with a cash payment to the Company through the close of business on December 31, 2019. The preferred shares have no voting or other preferences except as required by law other than the right of conversion described above and a liquidation preference equal to $.01 per share.

 

Between February and September 2017, 15,000 shares of Preferred Stock were converted into 1,500,000 shares of common stock and an equivalent number of warrants.

 

Thomas Arnost, our Executive Vice Chairman, and another principal stockholder agreed to convert letters of credit in the principal amount of $2,700,000 and $322,000 of secured debt into shares of common stock at the then marketing price of $.05 per share. Accrued interest on these obligations were either previously converted into our common stock or were upon conversion of the principal, converted into common stock at the fair market value of our common stock at each interest accrual date.

 

The Company also raised an additional $407,084 from the exercise of outstanding warrants and new subscriptions. For these transactions, the Company issued 8,141,667 shares of common stock.

 

In August and September of 2017, two non-affiliated noteholders, who purchased $1,600,000 of secured notes in February 2017, agreed to exchange $1,100,000 in principal notes plus accrued and unpaid interest and 30% premium for $1,501,500 of six-month secured notes. Between August 2017 and September 2017, the Company entered into agreements with Thomas Arnost, our Chairman, and various non-affiliated persons to provide an aggregate of $750,000 of six-month secured financing. The conversion price of the notes and other terms of these notes are substantially identical to the notes issued in February 2017, except for the maturity date. An aggregate of 750,000 shares of common stock was issued as an origination fee in connection with these loans. Alexander Capital L.P. acted as placement agent and advisor for this transaction. Thomas Arnost purchased $100,000 of the notes and received 100,000 shares of common stock.

 

 

 

 25 

 

 

Transactions with Thomas Arnost, Executive Chairman

 

In December 2013, Thomas Arnost, a director of Mobiquity, purchased from TCA Global Credit Master Fund, the Company’s outstanding convertible promissory note in the amount of $350,000. Subsequently Mr. Arnost and the Company agreed to fix the conversion price of the note at $.30 per share, extend the due date of the Note to June 12, 2014, which was subsequently extended to December 22, 2014 and again extended to December 31, 2015, subject to Mr. Arnost’s right to call the note at any time in his sole discretion, and increase the interest rate to 15% per annum. In December 2015, Mr. Arnost extended the due date of the note to December 31, 2016 and the Company agreed to lower the conversion price to $.20 per share.

 

Our agreement with Simon Properties requires us to maintain letters of credit for each calendar year under the agreement represented by the minimum amount of fees due for such calendar year. For 2015 and 2016, the minimum fees of $2.7 million has been secured through two bank letters of credit, one of which was issued in the amount of $1,350,000 utilizing the funds and the second letter of credit was obtained in the same amount through the funds of Thomas Arnost, our Executive Chairman. In the event Simon draws down upon either letter of credit, we have until the next minimum payment date (about 90 days) after the draw down to obtain replacement letters of credit. Each person who secured our letters of credit has the opportunity to notify us that they wish to turn the cash funds securing the letters of credit over to us and to convert such funds into our common stock. In February 2017, Thomas Arnost agreed to convert his $322,000 of secured debt and both Mr. Arnost and SNW JR Properties agreed to convert their letters of credit and any accrued interest at a conversion price of $.05 per share as to the principal amount and at market price for interest accrued at each respective interest accrual date. A total of 36,541,960 shares were issued to Mr. Arnost and 27,738,260 shares were issued to SNW JB Properties.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any credit facilities with variable interest rates.

 

ITEM 4. CONTROLS AND PROCEDURES

 

We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of our management, including our CEO and CFO, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

There were no changes in the Company's internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

 

 

 

 26 

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

As of the filing date of this Form 10-Q, we are not a party to any pending legal proceedings.

 

ITEM 1A. RISK FACTORS

 

As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 1A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 27 

 

 

ITEM 2. CHANGES IN SECURITIES.

 

(a) The Company filed a Form 8-K – date of earliest event February 28, 2017 to report various sales of unregistered securities. The aforementioned form 8-K filed with the SEC on March 1, 2017 is incorporated by reference. It should be noted that the number of Series AAA preferred shares reported in the Form 8-K of 1,142,538 should be corrected to 1,122,588 shares which agrees with the information provided in Note 3 of this Form 10-Q. From January 1, 2017 through September, 2017, we had no sales or issuances of unregistered capital stock, except as referenced above and in the table below:

 

Date of Sale   Title of Security   Number Sold   Consideration Received and Description of Underwriting or Other Discounts to Market
Price or Convertible
Security, Afforded to
Purchasers
  Exemption
from
Registration
Claimed
  If Option, Warrant or Convertible
Security, terms
of exercise or
conversion
Jan. – Sept. 2017   Common Stock   3,800,000 shares   Services rendered; no commissions paid   Section 4(2)   N/A
                     
Jan. – Sept. 2017  

Series AAA

Preferred Stock

  867,588 shares   Exchange of notes and Series AAA Preferred Stock; no commissions paid   Section 3(a)(9)   (1)
                     
Jan. – Sept. 2017   Common Stock   1,916,667 shares  

$95,834 from

Recent exercise of warrants; no commissions paid

  Section 4(2)   N/A
                     
Jan. – Sept. 2017  

Common Stock

and warrants

 

1,500,000 shares;

1,500,000 warrants

 

Exchange of

Series AAA

Preferred Stock for

common stock and

warrants

  Section 3(a)(9)   (1)
                     

Feb. to April 2017

 

Convertible notes

and common stock

 

$1,600,000

in principal

notes and

1,600,000

common

shares

 

$1,600,000 received;

$160,000 in

commissions

  Rule 506   (2)
                     

April to Sept. 2017

 

Convertible notes

and common stock

 

$1,100,000 in

principal notes

exchanged for

$1,501,500;

366,667

common

shares

 

$1,100,000 of

notes

exchanged for $1,501,500;

  Section 3(a)(9)   (2)
                     

Aug. to Sept. 2017

 

Convertible notes

And common stock

 

$750,000 in

principal notes;

$750,000

common shares

 

$750,000

Received; $107,000 in

commissions paid

  Rule 506   (2)

 

(1) See Note __ in the Notes to financial statements regarding the conversion terms of the Series AAA Preferred Stock and terms of the Warrants.

 

(2) See Note __ in the Notes to financial statements for a description of the conversion terms of the notes and warrants.

 

(b) Rule 463 of the Securities Act is not applicable to the Company.

 

(c) In the three months and nine months ended September 30, 2017, there were no repurchases by the Company of its Common Stock.

 

 

 

 28 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

Not applicable.

 

 

 

 29 

 

 

ITEM 6. EXHIBITS.

 

 

Exhibit      
Number     Exhibit Title
  3.1     Certificate of Incorporation filed March 26, 1998 (1)
  3.2     Amendment to Certificate of Incorporation filed June 10, 1999 (1)
  3.3     Amendment to Certificate of Incorporation approved by stockholders in 2005 (1)
  3.4     Amendment to Certificate of Incorporation dated September 11, 2008 (11)
  3.5     Amendment to Certificate of Incorporation dated October 7, 2009 (11)
  3.6     Amendment to Certificate of Incorporation dated May 18, 2012 (11)
  3.7     Amendment to Certificate of Incorporation dated September 10, 2013 (17)
  3.8     Amended By-Laws (1)
  3.9     2014 Amendment to By-Laws(19)
  3.10     Amendment to Certificate of Incorporation filed December 22, 2015 (23)
  3.11     Amendment to Certificate of Incorporation dated March 24, 2016 (21)
  3.12     Amendment to Certificate of Incorporation (22)
  4.1     Registration Rights Agreement (18)
  10.1     Employment Agreement - Michael Trepeta (2)
  10.2     Employment Agreement - Dean Julia (2)
  10.3     Amendments to Employment Agreement - Michael Trepeta (5) (7)
  10.4     Amendments to Employment Agreement - Dean L. Julia (5) (7)
  10.5     Joint Venture Agreement with Atrium Enterprises Ltd. (6)
  10.6     Agreement with Aon Consulting (6)
  10.7     Amendment to Exhibits 10.3 and 10.4 dated April 7, 2010 (10)
  10.8     Office Lease for Garden City, NY (11)
  10.9     Amendment to Employment Agreement – Dean L. Julia (11)
  10.10     Amendment to Employment Agreement – Michael D. Trepeta (11)
  10.11     Convertible Promissory Note (12)
  10.12     Registration Rights Agreement dated June 12, 2012 by and between the company and TCA (13)
  10.13     Equity Agreement dated June 12, 2012 by and between the company and TCA (13)
  10.14     Amendment to Dean L. Julia’s Employment Agreement (16)
  10.15     Amendment to Michael D. Trepeta’s Employment Agreement (16)
  10.16     Common Stock Purchase Agreement with Aspire Capital (18)
  10.17     Termination of TCA Registration Rights Agreement and Equity Agreement (18)
  10.18     Employment Agreement – Sean Trepeta (19)
  10.19     Employment Agreement – Paul Bauersfeld (19)
  10.20     Employment Agreement – Thomas Arnost (20)

 

 

 

 30 

 

 

  10.21     December 2013 Agreement with Thomas Arnost modifying secured debt purchased by Arnost from TCA (19)
  10.22     Letter Agreement dated December 9, 2014 with Thomas Arnost to extend expiration date of secured note to December 31, 2015 (19)
  10.23     Letter Agreement dated July 8, 2013 with Thomas Arnost to provide letter of credit for $1,350,000 (19)
  10.24     Letter Agreement dated July 8, 2013 with SNW Properties to provide letter of credit for $1,350,000 (19)
  10.25     Letter Agreement dated December 15, 2014 with Carl E. Berg (19)
  10.26     Separation Agreement with Michael D. Trepeta (24)
  10.27     Form of convertible promissory note. (22)
  10.28     Agreement - Sale of Ace Assets (25)
  11.1     Statement re: Computation of per share earnings. See Statement of Operations and Notes to Financial Statements
  14.1     Code of Ethics/Code of Conduct (Incorporated by reference to Form 10-K for the year ended December 31, 2014
  21.1     Subsidiaries of the Issuer (15)
  31.1     Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (*)
  31.2     Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (*)
  32.1     Certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (*)
  32.2     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (*)
  99.1     2005 Employee Benefit and Consulting Services Compensation Plan(2)
  99.2     Form of Class A Warrant (2)
  99.3     Form of Class B Warrant (2)
  99.4     Amendment to 2005 Plan (4)
  99.5     Form of Class C Warrant (8)
  99.6     2009 Employee Benefit and Consulting Services Compensation Plan(3)
  99.7     Form of Class D Warrant (3)
  99.8     Form of Class E Warrant (9)
  99.9     Form of Class F Warrant (9)
  99.10     Form of Class G Warrant (9)
  99.11     Form of Class H Warrant (9)
  99.12     Form of Class AA Warrant (11)
  99.13     Form of Class BB Warrant (11)
  99.14     Form of Class CC Warrant (19)
  101.INS     XBRL Instance Document (*)
  101.SCH     Document, XBRL Taxonomy Extension (*)
  101.CAL     Calculation Linkbase, XBRL Taxonomy Extension Definition (*)
  101.DEF     Linkbase, XBRL Taxonomy Extension Labels (*)
  101.LAB     Linkbase, XBRL Taxonomy Extension (*)
  101.PRE     Presentation Linkbase (*)

 

________________

* Filed herewith.

(1) Incorporated by reference to Registrant's Registration Statement on Form 10-SB as filed with the Commission on February 10, 2005.
(2) Incorporated by reference to Registrant’s Registration Statement on Form 10-SB/A filed with the Commission March 18, 2005.
(3) Incorporated by reference to Form 10-K filed for the fiscal year ended December 31, 2009.
(4) Incorporated by reference to the Registrant's Form 10-QSB/A filed with the Commission on August 18, 2005.
(5) Incorporated by reference to the Registrant's Form 10-KSB for its fiscal year ended December 31, 2005.
(6) Incorporated by reference to the Registrant's Form 10-KSB for its fiscal year ended December 31, 2006.
(7) Incorporated by reference to the Registrant's Form 8-K dated September 21, 2007.
(8) Incorporated by reference to the Registrant's Form 10-QSB for its quarter ended September 30, 2006.
(9) Incorporated by reference to the Registrant's Form 10-K for its fiscal year ended December 31, 2010.
(10) Incorporated by reference to the Registrant’s Form 10-Q for the quarter ended June 30, 2011.
 (11) Incorporated by reference to the Registrant's Form 10-K for its fiscal year ended December 31, 2012.
(12) Incorporated by reference to the Registrant’s Form 8-K dated June 14, 2012.
(13) Incorporated by reference to the Registrant’s Form 8-K dated June 15, 2012.
(14) Incorporated by reference to the Registrant’s Form 8-K dated June 6, 2013.
(15) Incorporated by reference to the Registrant's Form 10-K for its fiscal year ended December 31, 2013.
(16) Incorporated by reference to Form 8-K filed June 6, 2013.
(17) Incorporated by reference to Form 8-K filed September 11, 2013.
(18) Incorporated by reference to Form 8-K filed April 1, 2014.
(19) Incorporated by reference to Form 8-K filed with the SEC on December 19, 2014.
(20) Incorporated by reference to Form 8-K dated December 2, 2014.
(21) Incorporated by reference to Form 8-K dated March 24, 2016.
(22) Incorporated by reference to Form 8-K dated February 28, 2017.
(23) Incorporated by reference to Form 10-K for the fiscal year ended December 31, 2015.

(24)

Incorporated by reference to Form 10-K for the fiscal year ended December 31, 2016.

(25) Incorporated by reference to the Registrant’s Form 8-K filed October 18, 2017.

 

 

 

 

 31 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  MOBIQUITY TECHNOLOGIES, INC.
     
Date: November 14, 2017 By: /s/ Dean L. Julia
    Dean L. Julia,
    Principal Executive Officer
     
     
Date: November 14, 2017 By: /s/ Sean McDonnell
    Sean McDonnell,
    Principal Financial Officer

 

 

 

 

 

 

 

 

 

 

 32 

 

EX-31.1 2 mobiquity_ex3101.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

EXHIBIT 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

I, Dean L. Julia, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Mobiquity Technologies, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

      a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

      b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

      c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

      d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: November 14, 2017 /s/ DEAN L. JULIA
  DEAN L. JULIA,
  PRINCIPAL EXECUTIVE OFFICER

 

 

EX-31.2 3 mobiquity_ex3102.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

EXHIBIT 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

 

I, Sean McDonnell, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Mobiquity Technologies, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

      a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

      b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

      c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

      d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: November 14, 2017 /s/ SEAN MCDONNELL                  
  SEAN MCDONNELL, PRINCIPAL FINANCIAL OFFICER

 

EX-32.1 4 mobiquity_ex3201.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

EXHIBIT 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

 

 

In connection with the Quarterly Report of Mobiquity Technologies, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dean L. Julia, Co-Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

  /s/ DEAN L. JULIA    
  DEAN L. JULIA
  PRINCIPAL EXECUTIVE OFFICER
Date: November 14, 2017  

 

EX-32.2 5 mobiquity_ex3202.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

EXHIBIT 32.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18U.S.C. SECTION 1350

 

In connection with the Quarterly Report of Mobiquity Technologies, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sean McDonnell, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

  /s/ SEAN MCDONNELL
  SEAN MCDONNELL
  PRINCIPAL FINANCIAL OFFICER
Date: November 14, 2017  

 

 

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deficit Total Stockholders' Deficit Total Liabilities and Stockholders' Deficit Preferred Stock par value Preferred Stock shares authorized Preferred Stock shares issued Preferred stock shares outstanding Common stock par value Common stock shares authorized Common stock shares issued Common stock outstanding Income Statement [Abstract] Revenues Service Revenue Total revenues Cost of Revenues Cost of service revenue Total cost of revenue Gross Profit Operating Expenses: Selling, general and administrative Total Operating Expenses Loss from Operations Other Income (Expense): Interest expense Loss on Derivative Instrument Initial derivative expense Loss on disposition of fixed assets Loss on Settlement of Debt Impairment of intangible assets Total Other Income (Expense) Net Loss from continuing operations Other Comprehensive (Loss) Discontinued operations: Income (Loss) from operations of discontinued entity Net Comprehensive Loss Net Loss Per Common Share: Basic and diluted Weighted Average Common Shares Outstanding: Basic and diluted Statement of Cash Flows [Abstract] Cash Flows from Operating Activities: Net loss Net loss-discontinued operations Loss from operating activities, gross Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Expense Amortization - Intangible Assets Amortization - Debt discount Stock-based compensation Common stock issued for services Initial derivative expense Disposal of assets Gain on change in derivative Gain on settlement of debt Loss on disposition of fixed assets Expenses paid from note Changes in operating assets and liabilities: Accounts receivable Prepaid expenses and other assets Accounts payable Accrued expenses and other current liabilities Accrued interest Total adjustments Net Cash Used in Operating Activities Cash Flows from Investing Activities: Purchase of property and equipment Net Cash Used in Investing Activities Cash Flows from Financing Activities: Convertible notes issued for cash, net Proceeds from issuance of common stock Proceeds received from exercising warrants Cash paid for accrued interest Proceeds from the collection of stock subscription receivable Proceeds for the issuance of preferred stock Net Cash Provided by Financing Activities Net (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, beginning of period Cash and Cash Equivalents, end of period Supplemental Disclosure Information: Cash paid for interest Cash paid for taxes Non-cash Disclosures: Conversion of note and interest into AAA Preferred and Common Stock Extinguishment of convertible promissory notes Stock issued for interest Original debt discount against derivative liabilities Accounting Policies [Abstract] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Share [Abstract] LOSS PER SHARE Debt Disclosure [Abstract] CONVERTIBLE PROMISSORY NOTES Equity [Abstract] STOCKHOLDERS' DEFICIT Disclosure of Compensation Related Costs, Share-based Payments [Abstract] STOCK-BASED COMPENSATION Retirement Benefits [Abstract] STOCK OPTION PLANS Commitments and Contingencies Disclosure [Abstract] COMMITMENTS AND CONTINGENCIES Discontinued Operation DISCONTINUED OPERATION Subsequent Events [Abstract] SUBSEQUENT EVENTS NATURE OF OPERATIONS GOING CONCERN PRINCIPLES OF CONSOLIDATION ESTIMATES FAIR VALUE OF FINANCIAL INSTRUMENTS CASH AND CASH EQUIVALENTS CONCENTRATION OF CREDIT RISK REVENUE RECOGNITION ALLOWANCE FOR DOUBTFUL ACCOUNTS INVENTORY PROPERTY AND EQUIPMENT LONG-LIVED ASSETS WEBSITE TECHNOLOGY ADVERTISING COSTS ACCOUNTING FOR STOCK BASED COMPENSATION BENEFICIAL CONVERSIONS FOREIGN CURRENCY TRANSLATIONS INCOME TAXES RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Fair value of derivatives Summary of Convertible Promissory Notes Schedule of stock-based compensation expense Award Type [Axis] Assumptions used Schedule of options outstanding Schedule of warrants outstanding Operating lease future minimum payments Discontinued Operation Tables Discontinued operation Fair value of derviatives Cash flows from operations Change in derivatives Derivative expense Fair market value of derivatives Cash over FDIC insurance limits Allowance for doubtful accounts Asset impairment charges Inventory reserve Advertising costs Number of anti-dilutive common shares Secured Debt Total debt Current portion of debt Long-term portion of debt Unamortized discount Debt face value Convertible debt conversion rate range Maturity date ranges Gain on embedded derivative Debt converted, amount converted Debt converted, shares issued Stock converted, shares converted Stock converted, shares issued Stock converted, amount converted Loss on extinguishment of debt Stock issued with secured notes, shares Schedule of Stock by Class [Table] Class of Stock [Line Items] Stock issued for services, shares Stock issued for services, value Stock issued for interest, shares issued Stock issued for interest, value Stock issued for back rent, shares Stock issued for back rent, 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contractural term - ending Weighted average contractural term - exercisable Aggregate Intrinsic Value Aggregate intrinsic value - beginning Aggregate intrinsic value - granted Aggregate intrinsic value - ending Aggregate intrinsic value - exercisable Shares outstanding - beginning Shares granted Shares exercised Shares expired Shares outstanding - ending Shares exercisable Weighted average exercise price - beginning Weighted average exercise price - shares granted Weighted average exercise price - shares Exercised Weighted average exercise price - shares expired Weighted average exercise price - ending Weighted average exercise price - exercisable Weighted average contractural term - beginning Weighted average contractural term - granted Weighted average contractural term - ending Weighted average contractural term - exercisable Aggregate intrinsic value - beginning Aggregate intrinsic value - granted Aggregate intrinsic value - ending Aggregate intrinsic value - exercisable Weighted average grant date fair value of options Unamortized compensation cost related to stock option awards Shares authorized for plan Minimum lease commitment 2017 Minimum lease commitment 2018 Minimum lease commitment 2019 and thereafter Minimum lease commitment Rent and real estate expense Concentration risk percentage Discontinued Operation Details Results of discontinued operation Revenue Expenses (Loss) from discontinued operation, net Cash flows from (used in) discontinued operation Net cash used in operating activities Net cash from investing activities Net increase (decrease) cash flows for the period Effect of disposal on the financial position of the Group Property, equipment and intangibles, net Inventories, net Token liabilities Net assets and liabilities Consideration received, satisfied in cash Ace Marketing And Promotions Inc [Member] Mobiquity Networks [Member] Aggregate intrinsic value - granted Beneficial conversions [Policy Text Block] Conversion of note and interest into 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Cash Provided by (Used in) Operating Activities Net Cash Provided by (Used in) Operating Activities Payments to Acquire Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Interest Paid, Capitalized Net Cash Provided by (Used in) Financing Activities Cash and Cash Equivalents, Period Increase (Decrease) Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, 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Discontinued Operation, Property, Plant and Equipment, Current Disposal Group, Including Discontinued Operation, Inventory, Current EX-101.PRE 11 mobq-20170930_pre.xml XBRL PRESENTATION FILE XML 12 R1.htm IDEA: XBRL DOCUMENT v3.8.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2017
Nov. 14, 2017
Document And Entity Information    
Entity Registrant Name Mobiquity Technologies, Inc.  
Entity Central Index Key 0001084267  
Document Type 10-Q  
Document Period End Date Sep. 30, 2017  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   194,570,601
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2017  
XML 13 R2.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Sep. 30, 2017
Dec. 31, 2016
Current Assets:    
Cash and cash equivalents $ 213,268 $ 193,934
Accounts receivable, net 205,026 0
Prepaid expenses and other current assets 33,143 5,590
Total Current Assets 451,437 199,524
Property and equipment, net 0 9,187
Intangible assets, net 14,860 29,560
Other Assets 11,275 37,223
Assets held for sale 567,755 450,680
Total Assets 1,045,327 726,174
Current Liabilities:    
Accounts payable 295,521 418,719
Accrued expenses 546,456 1,150,565
Derivative liability 821,834 350,700
Convertible promissory notes, net 2,576,189 10,832,275
Total Current Liabilities 4,240,000 12,752,259
Long-term portion of convertible promissory notes, net 0 0
Liabilities held for sale 801,497 507,042
Total Liabilities 5,041,497 13,259,301
Stockholders' Deficit:    
Preferred Stock 0 25
Common stock, $.0001 par value; 900,000,000 and 500,000,000 shares authorized; 194,570,601 and 99,020,103 shares issued and outstanding at September 30, 2017, and December 31, 2016, respectively 19,469 9,913
Additional paid-in capital 44,266,329 38,652,075
Accumulated other comprehensive loss 0 (13,047)
Accumulated deficit (60,135,881) (51,182,093)
Total Stockholders' Deficit (15,850,083) (12,533,127)
Total Liabilities and Stockholders' Deficit 1,045,327 726,174
AAA Preferred Stock [Member]    
Stockholders' Deficit:    
Preferred Stock 11,851,913 0
Preferred Stock [Member]    
Stockholders' Deficit:    
Preferred Stock $ 0 $ 25
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2017
Dec. 31, 2016
Common stock par value $ .0001 $ 0.0001
Common stock shares authorized 900,000,000 500,000,000
Common stock shares issued 194,570,601 99,020,103
Common stock outstanding 194,570,601 99,020,103
AAA Preferred Stock [Member]    
Preferred Stock par value $ .0001 $ .0001
Preferred Stock shares authorized 5,000,000 5,000,000
Preferred Stock shares issued 1,107,588 0
Preferred stock shares outstanding 1,107,588 0
Preferred Stock [Member]    
Preferred Stock par value $ 0.0001 $ 0.0001
Preferred Stock shares authorized 5,000,000 5,000,000
Preferred Stock shares issued 0 240,000
Preferred stock shares outstanding 0 240,000
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.8.0.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Revenues        
Service Revenue $ 202,020 $ 42,562 $ 384,011 $ 113,494
Total revenues 202,020 42,562 384,011 113,494
Cost of Revenues        
Cost of service revenue 154,124 34,603 560,155 122,913
Total cost of revenue 154,124 34,603 560,155 122,913
Gross Profit 47,896 7,959 (176,144) (9,419)
Operating Expenses:        
Selling, general and administrative 791,600 1,773,670 3,816,557 5,929,691
Total Operating Expenses 791,600 1,773,670 3,816,557 5,929,691
Loss from Operations (743,704) (1,765,711) (3,992,701) (5,939,110)
Other Income (Expense):        
Interest expense (761,691) (1,177,734) (2,652,927) (2,598,411)
Loss on Derivative Instrument 1,608,259 1,444,861 2,892,290 2,201,696
Initial derivative expense 0 0 (1,284,704) (565,780)
Loss on disposition of fixed assets 0 (17,526) 0 (17,526)
Loss on Settlement of Debt (960,177) 0 (3,666,374) 0
Impairment of intangible assets 0 0 (12,127) 0
Total Other Income (Expense) (113,609) 249,601 (4,723,842) (980,021)
Net Loss from continuing operations (857,313) (1,516,110) (8,716,543) (6,919,131)
Other Comprehensive (Loss) 0 11,129 13,047 (9,660)
Discontinued operations:        
Income (Loss) from operations of discontinued entity 7,053 (155,014) (237,244) (602,663)
Net Comprehensive Loss $ (850,260) $ (1,659,995) $ (8,940,740) $ (7,531,454)
Net Loss Per Common Share:        
Basic and diluted $ (0.00) $ (0.02) $ (0.05) $ (0.09)
Weighted Average Common Shares Outstanding:        
Basic and diluted 192,860,824 82,656,917 178,527,374 81,619,169
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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash Flows from Operating Activities:    
Net loss $ (8,716,543) $ (6,919,131)
Net loss-discontinued operations (237,245) (602,663)
Loss from operating activities, gross (8,953,788) (7,521,794)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation Expense 2,994 81,394
Amortization - Intangible Assets 14,700 14,700
Amortization - Debt discount 2,061,307 1,878,002
Stock-based compensation 516,629 512,949
Common stock issued for services 314,310 122,750
Initial derivative expense 1,284,704 565,780
Disposal of assets 0 17,526
Gain on change in derivative (2,892,291) (2,201,696)
Gain on settlement of debt 3,666,374 0
Loss on disposition of fixed assets 12,241 0
Expenses paid from note 567,737 0
Changes in operating assets and liabilities:    
Accounts receivable (205,026) 0
Prepaid expenses and other assets (7,654) (46,906)
Accounts payable (123,198) 290,019
Accrued expenses and other current liabilities (121,332) 72,463
Accrued interest 471,637 656,431
Total adjustments 5,563,132 1,963,412
Net Cash Used in Operating Activities (3,390,656) (5,558,382)
Cash Flows from Investing Activities:    
Purchase of property and equipment 0 (253,145)
Net Cash Used in Investing Activities 0 (253,145)
Cash Flows from Financing Activities:    
Convertible notes issued for cash, net 2,378,000 2,840,376
Proceeds from issuance of common stock 311,250 0
Proceeds received from exercising warrants 95,834 0
Cash paid for accrued interest (3,140) 0
Proceeds from the collection of stock subscription receivable 456,503 0
Proceeds for the issuance of preferred stock 0 400,000
Net Cash Provided by Financing Activities 3,238,447 3,240,376
Net (Decrease) in Cash and Cash Equivalents (152,209) (2,571,151)
Cash and Cash Equivalents, beginning of period 193,934 130,489
Cash and Cash Equivalents, end of period 213,268 (2,440,662)
Supplemental Disclosure Information:    
Cash paid for interest 0 61,192
Cash paid for taxes 0 0
Non-cash Disclosures:    
Conversion of note and interest into AAA Preferred and Common Stock 2,706,196 0
Extinguishment of convertible promissory notes 960,178 0
Stock issued for interest 0 449,297
Original debt discount against derivative liabilities $ 0 $ 1,079,016
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.8.0.1
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2017
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS – On September 10, 2013, Mobiquity Technologies, Inc. changed its name from Ace Marketing & Promotions, Inc. “the Company” or “Mobiquity”). We operate through two wholly-owned U.S. subsidiaries, namely, Mobiquity Networks, Inc. and Ace Marketing & Promotions, Inc. Mobiquity Networks owns 100% of Mobiquity Wireless S.L.U, a company incorporated in Spain. This corporation had an office in Spain to support our U.S. operations, which office was closed in the fourth quarter of 2016.

 

We operate a national location-based mobile advertising network that has developed a consumer-focused proximity network. Our integrated suite of proprietary location based mobile advertising technologies allows clients to execute more personalized and contextually relevant experiences, driving brand awareness and incremental revenue.

 

Mobiquity Technologies, Inc., a New York corporation (OTCQB: MOBQ). Through its wholly-owned subsidiary, Mobiquity Networks, Inc. has evolved and grown from a mobile advertising technology company focused on Driving Awareness and Foot-traffic throughout its indoor mall-based beacon network, into a next generation mobile location data and marketing company. The Company provides precise unique, at-scale location based data and insights on consumer’s real-world behavior and trends for use in marketing and research. With our combined data sets beacon data, and first party location data via our advanced Software Development Kit (SDK) utilizing multiple geo-location technologies; Mobiquity Networks provides one of the most accurate and scaled solution for mobile data collection and analysis. This should create several revenue streams, including, but not limited to; Push Notification Campaigns, Re-targeting Campaigns, Data Licensing, Audience Profiles, Attribution Reporting and Custom Research.

 

Ace Marketing is our legacy marketing and promotions business which provides integrated marketing services to our commercial customers. While Ace Marketing currently represents a substantial portion of our revenue, as anticipated the activity from Ace Marketing was a diminishing portion of corporate revenue as our attention is principally focused on developing and executing on opportunities in our Mobiquity Networks business. Certain assets and liabilities of Ace Marketing were sold in the fourth quarter of 2017 and will no longer be an operating entity for Mobiquity Technologies.

 

GOING CONCERN - The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company's continued existence is dependent upon the Company's ability to obtain additional debt and/or equity financing to advance its new technology revenue stream. The Company has incurred losses for the three months and nine months ended September 30, 2017. As of September 30, 2017, the Company has an accumulated deficit of $60,135,881. The Company has had negative cash flows from operating activities of $3,232,160 for the nine months ended September 30, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

 

Management has plans to address the Company’s financial situation as follows:

 

In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan related to mobile location data. Management will continue to seek out both equity and debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders and investors will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going concern.

 

In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s efforts to raise equity and debt at acceptable terms or that the planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.

 

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Mobiquity Technologies, Inc., formerly known as Ace Marketing & Promotions, Inc., and its wholly owned subsidiaries, Mobiquity Networks, Inc., Ace Marketing, Inc., (which has had its name changed to Ace Marketing & Promotions, Inc.). All intercompany accounts and transactions have been eliminated in consolidation.

 

The Condensed Consolidated Balance Sheets as of September 30, 2017, the Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2017 and 2016 and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 have been prepared by us without audit, and in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly in all material respects our financial position as of September 30, 2017, results of operations for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine months ended September 30, 2017 and 2016. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year. We have evaluated subsequent events through the filing of this Form 10-Q with the Securities and Exchange Commission, and determined there have not been any events that have occurred that would require adjustments to our unaudited Condensed Financial Statements.

 

The information contained in this report on Form 10-Q should be read in conjunction with our Form 10-K for our fiscal year ended December 31, 2016.

 

ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS- The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

  · Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
     
  · Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
     
  · Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.

 

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3.

 

    Level 1   Level 2   Level 3   Total 
 Fair value of derivatives   $   $   $821,834   $821,834 

 

Embedded Conversion Features

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.

 

Derivative Financial Instruments

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 12 convertible notes issued totaling $2,136,500 which included a ratchet provision in the conversion price of $.05 or $.30 or a price equal to the last equity transaction completed by the Company as part of a subscription agreement. The notes have maturity dates ranging from July 31, 2017 – February 27, 2018. The Company also has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 500,000 warrants which included a ratchet provision in the conversion price of $.05 as part of a conversion of preferred AAA shares, and 1,000,000 warrants which included a ratchet provision in the conversion price of $.055 as part of a placement fee related to a note. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of September 30, 2017. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and derivative expense of $1,284,704 during the period ended September 30, 2017. As of September 30, 2017, the fair market value of the derivatives aggregated $821,834 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04%, and a discount rate of 0.00% to 1.47%.

 

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of September 30, 2017 and December 31, 2016. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

 

The carrying amounts of financial instruments, including accounts receivable, accounts payable and accrued liabilities, and promissory note, approximated fair value as of September 30, 2017 and December 31, 2016, because of the relatively short-term maturity of these instruments and their market interest rates. No instruments are carried at fair value.

 

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt instruments with a maturity of three months or less, as well as bank money market accounts, to be cash equivalents. As of September 30, 2017, and December 31, 2016, the balances were $213,268 and $193,934, respectively.

 

CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and cash and cash equivalents.

 

Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited.

 

The Company places its temporary cash investments with high credit quality financial institutions. At times, the Company maintains bank account balances, which exceed FDIC limits. As of September 30, 2017, and December 31, 2016, the Company exceeded FDIC limits by $0 and $0, respectively.

 

REVENUE RECOGNITION — The Company recognizes revenue, for all revenue streams, when it is realized or realizable and estimable in accordance with ASC 605, "Revenue Recognition". The Company will recognize revenue only when all of the following criteria have been met:

 

  · Persuasive evidence for an agreement exists;
  · Service has been provided;
  · The fee is fixed or determinable; and,
  · Collection is reasonably assured.

 

ACE MARKETING — Ace Marketing's revenue is recognized when title and risk of loss transfers to the customer and the earnings process is complete. In general, title passes to our customers upon the customer's receipt of the merchandise. Revenue is recognized on a gross basis since Ace Marketing has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk. Advance payments made by customers are included in customer deposits. Ace Marketing records all shipping and handling fees billed to customers as revenues and related costs as cost of goods sold, when incurred. Additional source of revenue, derived from emails/texts directly to consumers are recognized under contractual arrangements. Revenue from this advertising method is recognized at the time of service provided.

 

MOBIQUITY NETWORKS – Revenue is recognized with the billing of an advertising contract or data licensing sale. The customer signs a contract directly with us for an advertising campaign with mutually agreed upon term and is billed on the start date of the advertising campaign, which are normally in short duration periods. The second type of revenue is through the licensing of our data. Revenue from data can occur in two ways; the first is a direct feed, which is billed at the end of each month. The second way is through the purchasing of audience segments. When an audience segment is purchased, we bill the buyer upon reported usage, which is usually 30 days from the order date.

  

ALLOWANCE FOR DOUBTFUL ACCOUNTS - Management must make estimates of the collectability of accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. As of September 30, 2017, and December 31, 2016, allowance for continuing operations doubtful accounts were $0.00 and $0.00, respectively.

 

INVENTORY - Inventory is recorded at cost (First In, First Out) and is comprised of finished goods. The Company maintains an inventory on hand for its largest customer's frequent order items. All items held are branded for the customer, therefore are not available for public distribution. The Company has an agreement with this customer, for cost recovery, if vendor relationship is terminated. There have been minimal reserves placed on inventory, based on this arrangement. As of September 30, 2017, and December 31, 2016, the Company has reserved against $0.00 and $0.00, respectively.

 

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation is expensed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are being amortized using the straight-line method over the estimated useful lives of the related assets or the remaining term of the lease. The costs of additions and improvements, which substantially extend the useful life of a particular asset, are capitalized. Repair and maintenance costs are charged to expense. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the account and the gain or loss on disposition is reflected in operating income.

 

LONG LIVED ASSETS - Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The company recognized $223,487 impairment losses for the period ended December 31, 2016 and $12,127 for the nine months ended September 30, 2017.

 

WEBSITE TECHNOLOGY - Website technology developed during the prior years were capitalized for the period of development and testing. Expenditures during the planning stage and after implementation have been expensed in accordance with ASC 985.

 

ADVERTISING COSTS- Advertising costs are expensed as incurred. For the nine months ended September 30, 2017 and September 30, 2016, there were advertising costs of $0 and $3,129, respectively.

 

ACCOUNTING FOR STOCK BASED COMPENSATION. Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period. The Company uses the Black-Sholes option-pricing model to determine fair value of the awards, which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of the Company's common stock price over the expected term ("volatility") and the number of options for which vesting requirements will not be completed ("forfeitures"). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statements of operations. Refer to Note 6 "Stock Option Plans" in the Notes to Consolidated Financial Statements in this report for a more detailed discussion.

 

BENEFICIAL CONVERSIONS - Debt instruments that contain a beneficial conversion feature are recorded as deemed interest to the holders of the convertible debt instruments. The beneficial conversion is calculated as the difference between the fair values of the underlying common stock less the proceeds that have been received for the debt instrument limited to the value received.

 

FOREIGN CURRENCY TRANSLATIONS - The Company's functional and reporting currency is the U.S. dollar. We owned a subsidiary in Europe. Our subsidiary's functional currency is the EURO. All transactions initiated in EUROs are translated into U.S. dollars in accordance with ASC 830-30, "Translation of Financial Statements," as follows:

 

  (i) Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.
     
  (ii) Fixed assets and equity transactions at historical rates.
     
  (iii) Revenue and expense items at the average rate of exchange prevailing during the period.

  

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders' equity as a component of comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income. The subsidiary has since been closed down with foreign operations now being conducted back in the United States.

 

INCOME TAXES - Deferred income taxes are recognized for temporary differences between financial statement and income tax basis of assets and liabilities for which income tax or tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets, if it is more likely than not, that all or some portion of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

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2. LOSS PER SHARE
9 Months Ended
Sep. 30, 2017
Net Loss Per Common Share:  
LOSS PER SHARE

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Dilutive loss per share gives effect to stock options and warrants, which are considered to be dilutive common stock equivalents. Basic loss per common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding. The number of common shares potentially issuable upon the exercise of certain options and warrants that were excluded from the diluted loss per common share calculation was approximately 100,796,390 because they are anti-dilutive as a result of a net loss for the three and nine months ended September 30, 2017.

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3. CONVERTIBLE PROMISSORY NOTES
9 Months Ended
Sep. 30, 2017
Debt Disclosure [Abstract]  
CONVERTIBLE PROMISSORY NOTES

Summary of Convertible Promissory Notes:

 

  

September 30,

2017

  

December 31,

2016

 
Arnost Note  $   $322,000 
Cavu Notes net of $0 for 2017 and $8,379 for 2016   100,000    241,621 
Berg Notes (a)   50,000    3,722,000 
Investor Note, net of discounts   100,000    6,546,654 
Secured Debt (b) net of $425,311 for 2017 and $0 for 2016   2,326,189    -0- 
Total Debt   2,576,189    10,832,275 
Current portion of debt   2,576,189    10,832,275 
Long-term portion of debt  $   $ 

 

  (a) Between August and December 2015, the Company borrowed $3,675,000 from accredited investors. These loans are due and payable the earlier of December 31, 2016 or the completion of an equity financing of at least $2,500,000. Upon the sale of the unsecured promissory notes, the Company issued $1 of principal, one share of common stock and a warrant to purchase one share of common stock at an exercise price of $0.40 per share through August 31, 2017. Accordingly, an aggregate of 3,675,000 shares of common stock and warrants to purchase a like amount were issued in the last six months of 2015. Each noteholder has the right to convert the principal of their note and accrued interest thereon at a conversion price of $0.30 per share or at the noteholder’s option, into equity securities of the Company on the same terms as the last equity transaction completed by the Company prior to each respective conversion date.
     
  (b)

On February 28, 2017, the Company entered into an agreement with two non-affiliated persons to provide $1.6 million of short term secured debt financing in three monthly tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection with this transaction, the Company agreed to issue an origination fee of 3,200,000 warrants. Alexander Capital L.P. acted as Placement Agent and Advisor for this transaction. In August and September 2017, the noteholders exchanged their $1,100,000 of notes that were coming due in August 2017 plus a 30% premium and accrued interest for new six-month notes in the principal amount of $1,501,500. As additional consideration for the exchange, the Company issued 366,667 shares of common stock. The loss recognized on the extinguishment of debt is $960,177.

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 12 convertible notes issued totaling $2,136,500 which included a ratchet provision in the conversion price of $.05 or $.30 or a price equal to the last equity transaction completed by the Company as part of a subscription agreement. The notes have maturity dates ranging from July 31, 2017 – February 27, 2018. The Company also has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 500,000 warrants which included a ratchet provision in the conversion price of $.05 as part of a conversion of preferred AAA shares, and 1,000,000 warrants which included a ratchet provision in the conversion price of $.055 as part of a placement fee related to a note. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of September 30, 2017. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and derivative expense of $1,284,704 during the period ended September 30, 2017. As of September 30, 2017, the fair market value of the derivatives aggregated $821,834 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04%, and a discount rate of 0.00% to 1.47%.

  

In April 2016 through the filing date of this Form 10-Q, the Company issued and sold 12% unsecured promissory notes in the principal amount of $1,025,000, convertible at $0.20 per common share. Upon conversion, the note holders would receive 100% warrant coverage, exercisable at $0.20 per common share over a period of five years with cashless exercise provisions. These notes automatically convert in the event at least $5 million is raised in an equity financing. Prior to the mandatory conversion date, note holders have the option to convert the principal and accrued interest also on the same terms as the mandatory conversion and the Company has the option to prepay. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and initial derivative expense of $1,284,704. As of December 31, 2016, the fair market value of these derivatives aggregated $126,275, using the following assumptions: estimated 0.3 year term, estimated volatility of 279%, and a discount rate of 0.51%. As of September 30, 2017, the fair market value of the derivatives aggregated $1,152,499 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04% and the discount rate of 0.00% to 1.47%

 

The Company raised $700,000 in the third quarter of 2016 from the sale of secured promissory notes in the principal amount of $700,000 from six accredited investors. Each Note was scheduled to be repaid on October 31, 2016, extended to December 15, 2016 but payment was not made. In lieu of interest on the Note, 4,900,000 restricted shares of common stock were issued to the Note Holders. At the option of the Note Holder, each Note shall be convertible at the lower of $.20 per common share or into securities on the same terms of the next completed equity offering of at least $10 million in gross proceeds. In the event the Note is converted into common stock, 100% warrant conversion shall be provided to the Note Holder for each share of common stock issued upon conversion. These warrants will have a term of three years and shall be exercisable at $.20 per common share. Prior to this offering, Thomas Arnost, Executive Chairman, has a secured interest in the amount of $322,000 in the assets of the Company and its subsidiaries. Mr. Arnost has agreed that the investors in this offering will have a pari passu first secured interest with Mr. Arnost in all assets of the Company and its subsidiaries. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $11,071. As of December 31, 2016, the fair market value of these derivatives aggregated $42,945, using the following assumptions: estimated volatility of 279.0%, and a discount rate of 0.51%. As of September 30, 2017, the fair market value of these derivatives aggregated $1,152,499, using the following assumptions: expected volatility of 92.80% to 338.04% and a discount rate of 0.00% to 1.47%.

 

In February 2017, The Company debt holders converted $3,672,000 of notes being converted at 0.05 per share into 73,440,000 shares of common stock.

 

In February 2017, the Company reported that all of its Series AA preferred stock and substantially all of its outstanding debt both secured and unsecured (approximately $12.1 million) have been converted into equity securities of the Company as outlined below. It should be noted that the capital transactions below were based on a premium to the average closing sale price of $0.045 per share during the 60 day period prior to February 08, 2017. The Company had outstanding 1,122,588 shares of newly designated Series AAA preferred stock and $1,350,000 of convertible notes. The convertible notes consist of $1,200,000 of secured notes and $150,000 of unsecured notes. Of the 1,122,588 shares of Series AAA preferred stock outstanding, 240,000 Series AA preferred stock with an original cost basis of $2.4 million were converted into Series AAA preferred stock. The remaining 882,588 shares of Series AAA preferred stock were issued in exchange for the conversion of principal and accrued interest of approximately $11,854,038 of unsecured debt. This conversion resulted in a loss on extinguishment of debt of $2,706,197. The terms of the Series AAA preferred stock can be summarized as follows:

 

The price of each preferred share shall be, at the option of the holder, convertible into 100 shares of Common Stock. If the preferred shares are converted, the subscriber will then receive 100% warrant coverage, with each warrant exercisable at $.05 per share with a cash payment to the Company through the close of business on December 31, 2019. The preferred shares have no voting or other preferences except as required by law other than the right of conversion described above and a liquidation preference equal to $.01 per share.

 

In February 2017, Thomas Arnost, our Executive Vice Chairman, and another principal stockholder agreed to convert letters of credit in the principal amount of $2,700,000 and $322,000 of secured debt into shares of common stock at the then marketing price of $.05 per share. Accrued interest on these obligations were either previously converted into our common stock or were upon conversion of the principal, converted into common stock at the fair market value of our common stock at each interest accrual date.

 

Between August and September 2017, the Company issued $750,000 of secured notes due in six months to various investors. The notes are convertible at $.05 per share through the maturity date, subject to adjustment in the event of default. A total of 750,000 origination shares of common stock were issued to the noteholders. Thomas Arnost, Chairman of the Company, invested $100,000 in the loan transaction.

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4. STOCKHOLDERS' DEFICIT
9 Months Ended
Sep. 30, 2017
Equity [Abstract]  
STOCKHOLDERS' DEFICIT

In December 2015, the Company sold 200,000 shares of its Series AA Preferred Stock at a purchase price of $10 per share and raised $2 million. Each share of Preferred Stock is convertible into 50 shares of Common Stock at an effective conversion price of $.20 per share of Common Stock. The Preferred Stockholder has anti-dilution protection rights through December 31, 2016. In the first quarter of 2016, the Company sold an additional 40,000 shares of its Series AA Preferred Stock and raised $400,000. In 2017, the Company exchanged 240,000 shares of AA preferred stock for AAA preferred stock. Also in 2017, the Company issued an additional 882,588 shares of AAA preferred stock in exchange for outstanding debt and accrued interest. The AAA Preferred shares at a purchase price of $10 per share shall be, at the option of the holder, convertible into 100 shares of Common Stock. If the preferred shares are converted, the subscriber will then receive 100% warrant coverage, with each warrant is exercisable at $0.05 per share with an expiration date of December 31, 2019. The preferred shares have no voting or other preferences except as required by law other than the right of conversion described above and a liquidation preference equal to $.01 per share. During the six months ended June 30, 2017, 5,000 AAA Preferred shares were converted to 500,000 shares of common stock.

 

Between February 2017 and September 30, 2017, preferred stockholders owning 15,000 shares of Series AAA Preferred Stock have exchange their preferred shares for 1,500,000 common shares and Warrants to purchase an equivalent amount of shares.

 

Shares issued for services

 

During the quarter ended March 31, 2017, the Company issued 3,800,000 common shares, at $0.06 to $0.13 per share, valued at $314,310. During the second and third quarters of 2017, the Company issued no common shares for services.

 

Shares issued for accrued interest

 

During the quarter ended March 31, 2017, the Company issued 3,919,620 common shares, at $0.04 to $0.05 per share, valued at $194,790 and AAA preferred shares of 47,588, at $10.00 per share, valued at $475,841. No shares were issued for interest during the quarter ended June 30, 2017. During the quarter ended September 30, 2017 the Company issued 32,544 common shares, at $0.09 per share, valued at $3,074.

 

During the year entered December 31, 2016, the Company issued 1,000,000 common shares in satisfaction of back rent owed the landlord in the sum of $57,157. The shares were valued at $20,000 and a gain on settlement of debt was recorded of $36,177.

 

During the year ended December 31, 2016, the Company issued 11,908,335 common shares, at $0.05 per share, valued at $594,417 for the exercise of outstanding warrants. During the quarter ended March 31, 2017, the Company issued 1,916,667 shares, at $0.05 per share, valued at $95,834 for cash for the exercise of outstanding warrants.

 

See Note 3 above for a discussion of certain stock transactions.

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5. STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION

Compensation costs related to share-based payment transactions, including employee stock options, are recognized in the financial statements utilizing the straight-line method for the cost of these awards.

 

The Company's results for the three months ended September 30, 2017 and 2016 include employee share-based compensation expense totaling $91,300 and $163,500, respectively. The Company’s results for the nine-month periods ended September 30, 2017 and 2016 include share based compensation expense totaling approximately $516,600 and $512,900, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within selling, general and administrative expenses. No income tax benefit has been recognized in the statement of operations for share-based compensation arrangements due to a history of operating losses.

 

The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2017   2016   2017   2016 
Employee stock-based compensation - option grants  $91,271   $142,040   $394,129   $437,699 
Employee stock-based compensation - stock grants                
Non-Employee stock-based compensation - option grants       21,500    11,500    75,250 
Non-Employee stock-based compensation - stock grants                
Non-Employee stock-based compensation-stock warrant           111,000     
Total  $91,271   $163,540   $516,629   $512,949 
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6. STOCK OPTION PLAN
9 Months Ended
Sep. 30, 2017
Retirement Benefits [Abstract]  
STOCK OPTION PLANS

During Fiscal 2005, the Company established, and the stockholders approved, an Employee Benefit and Consulting Services Compensation Plan (the "2005 Plan") for the granting of up to 2,000,000 non-statutory and incentive stock options and stock awards to directors, officers, consultants and key employees of the Company. On June 9, 2005, the Board of Directors amended the Plan to increase the number of stock options and awards to be granted under the Plan to 4,000,000. During Fiscal 2009, the Company established a plan of long-term stock-based compensation incentives for selected Eligible Participants of the Company covering 4,000,000 shares. This plan was adopted by the Board of Directors and approved by stockholders in October 2009 and shall be known as the 2009 Employee Benefit and Consulting Services Compensation Plan (the "2009 Plan"). In September 2013, the Company's stockholders approved an increase in the number of shares covered by the 2009 Plan to 10,000,000. In February 2015, the board approved, subject to stockholder approval within one year, an increase in the number of shares under the 2009 Plan to 20,000,000 shares. (The 2005 and 2009 Plans are collectively referred to as the "Plans" and the Company has a combined 14,000,000 shares, which will increase to 24,000,000 shares upon stockholder approval of the increase in the 2009 Plan, available for issuance under the Plans.)

 

In the first quarter of 2016, the Board approved and stockholders ratified a 2016 Employee Benefit and Consulting Services Compensation Plan covering 10,000,000 shares (the “2016 Plan”) and approving moving all options which exceeded the 2009 Plan limits to the 2016 Plan.

 

All stock options under the Plans are granted at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying periods and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to the provisions of ASC 718 "Stock Compensation", previously Revised SFAS No. 123 "Share-Based Payment" ("SFAS 123 (R)"). The fair values of these restricted stock awards are equal to the market value of the Company's stock on the date of grant, after taking into certain discounts. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously, such assumptions were determined based on historical data.

 

The weighted average assumptions made in calculating the fair values of options granted during the three and nine months ended September 30, 2017 and 2016 are as follows:

 

   Three Months Ended
September 30
   Nine Months Ended
June 30
 
   2017   2016   2017   2016 
Expected volatility   0.00%    131.39%    146.77%    134.23% 
Expected dividend yield                
Risk-free interest rate   0.00%    0.97%    1.89%    1.24% 
Expected term (in years)   0.00%    5.00    5.00    5.00 

 

   Share   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
Outstanding, January 1, 2017   18,315,001    0.41    5.14   $5,625 
Granted   250,000    0.05    4.3     
Exercised                
Cancelled & Expired   (1,050,000)            
                     
Outstanding, September 30, 2017   17,515,001    0.39    4.68   $2,000 
                     
Options exercisable, September 30, 2017   17,037,918    0.39    4.65   $2,000 

 

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2017 and 2016 was $0.05 and $0.10, respectively.

 

The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2017 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the shares that had exercise prices, that were lower than the $0.04 closing price of the Company's common stock on September 30, 2017.

 

As of September 30, 2017, the fair value of unamortized compensation cost related to unvested stock option awards was $290,783.

 

The weighted average assumptions made in calculating the fair value of warrants granted during the three and nine months ended September 30, 2017 and 2016 are as follows:

 

   Three Months Ended
September 30
   Nine Months Ended
September 30
 
   2017   2016   2017   2016 
Expected volatility   0.00%    0.00%    151.49%    0.00% 
Expected dividend yield                
Risk-free interest rate   0.00%    0.00%    1.88%    0.00% 
Expected term (in years)   0.00        4.75     

   

    Share   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
 Outstanding, January 1, 2017    21,252,734   $0.48    1.40   $ 
 Granted    5,700,000   $0.07    3.50     
 Exercised    (1,916,667)            
 Expired    (3,492,221)            
 Outstanding, September 30, 2017    21,543,846   $0.37    1.51     
                       
 Warrants exercisable, September 30, 2017    21,543,846   $0.37    1.51   $ 
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7. COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

COMMITMENTS –

 

In April 2011, we entered into our agreement with Simon Property Group, which agreement was amended first in September 2013 and then in July 2014. This second amendment provides for us to expand our location-based mobile mall network footprint to about 195 current Simon malls across the United States. Our agreement with Simon currently expires December 31, 2017. Simon is entitled to receive fees from us equal to the greater of a pre-set per mall fee or a percentage of revenues derived from within the Simon Mall network. The revenue share agreement in which Simon participates will exceed the minimum annual mall fees if the Company has generated revenues within the Simon network of about $15 million or more in a calendar year. Our agreement with Simon requires the company to maintain letters of credit for each calendar year under the agreement represented by the minimum amount of fees due for such calendar year. For 2015, the minimum fees of $2.7 million has been secured through two bank letters of credit, one of which was issued in the amount of $1,350,000 utilizing the funds of a non-affiliated stockholder and the second letter of credit was obtained in the same amount through the funds of Thomas Arnost, our Executive Chairman. In the event Simon draws down upon either letter of credit, we have until the next minimum payment due date (approximately 90 days) after the draw down to obtain replacement letters of credit. Each person who secured our letters of credit has the opportunity to notify us that they wish to turn the cash funds securing the letters of credit over to us and to convert such funds into Common Stock currently at a conversion price of $.20 per share. Also, each person who issued the letter of credit is receiving quarterly, while the letters of credit are outstanding, options to purchase 125,000 shares of Common Stock, exercisable at the prevailing market price per share on the date of grant and interest at the rate of 8% per annum on the monies that they have had to set aside in their bank accounts and are unable to have access to such monies. In April, July and October 2016 and January and April 2017, Simon drew down on each bank letter of credit for an aggregate of $1,350,000 owed to each letter of credit provider, prior to terminating the agreement in September 2017 for failure to pay their agreed upon fees. During the first quarter of 2017, the Letter of Credit holders converted the entire $2,700,000 into 54,000,000 shares of Common Stock.

 

Pursuant to a master agreement effective August, 2015, we entered into an agreement with PREIT pursuant to which we have the right to install our Mobi-Beacons and to send information across the air space of the common areas of our PREIT mall network, which will include approximately 27 malls in select states in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior common areas of these malls is exclusive. Under our agreement between us and PREIT, PREIT is entitled to an agreed upon revenue share over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is not attained for any measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days prior written notice. PREIT may also terminate the agreement if it determines that Mobiquity’s installed equipment is not adequate and/or provides a negative user experience for the visitors to the PREIT malls. The agreement also provides for PREIT to adjust the number of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the malls.

 

Pursuant to a master agreement entered into in 2015, we entered into an agreement with Rouse pursuant to which we have the right to install our Mobi-Beacons to send information across the air space of the common areas of our Rouse mall network, which will include approximately 30 malls in select states in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior common areas of these malls is exclusive. Under our agreement between us and Rouse, Rouse is entitled to an agreed upon revenue share over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is not attained for any measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days prior written notice. Either party may also terminate the agreement due to a material breach which is not cured within 30 days of written notice. Also, Rouse upon at least 60 days written notice to us prior to the end of the second contract year, may terminate the agreement with respect to any participating property for any reason at the end of the second contract year. The agreement also provides for Rouse to adjust the number of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the malls.

 

In February 2012, the Company entered into a lease agreement for new executive office space of approximately 4,200 square feet located at 600 Old Country Road, Suite 541, Garden City, NY 11530. The lease agreement was for 63 months, commencing April 2012 and expired in June 2017. The annual rent under this office facility for the first year was about $127,000, including electricity, subject to an annual increase of 3%. The Company owes approximately $57,504 under this lease which is currently in collections.

 

Our lease for approximately 2,000 square feet of space at an annual cost of approximately $30,100 (inclusive of taxes) at 1105 Portion Road, Farmingville, NY 11738 expired in November 2013. We currently lease this property on a month to month basis for approximately $2,500 per month beginning December 2014, with a 5% increase in rent each year.

 

In March of 2014, we entered into a month-to-month lease agreement for approximately 400 square feet of office space located in Manhattan, NY at a monthly cost of $3,700. In May of 2015 we moved to a larger location with the same landlord on a month to month basis for $7,500 per month.

 

In June of 2017, we entered into a month-to-month lease agreement for approximately 1,600 square feet of office space located in Uniondale New York at a monthly cost of $6,500 for the months of July and August 2017.

 

Minimum future rentals under non-cancelable lease commitments are as follows:

 

YEARS ENDING DECEMBER 31,     
 2017     
 2018     
 2019 and thereafter     
     $ 

 

Rent and real estate tax expense was approximately $1,090,118 and $2,801,090 for the nine months ended September 30, 2017 and 2016, of which $969,521 and $2,634,837 were related to mall rents, respectively. Rent and real estate tax expense was approximately $36,499 and $886,312 for the three months ended September 30, 2017 and 2016, of which $0.00 and $825,218 were related to mall rents, respectively.

 

EMPLOYMENT CONTRACTS –

 

Michael D. Trepeta and Dean L. Julia

 

On March 1, 2005, the Company entered into employment contracts with two of its officers, namely, Dean L. Julia and Michael D. Trepeta. The employment agreements provide for minimum annual salaries plus bonuses equal to 5% of pre-tax earnings (as defined) and other perquisites commonly found in such agreements. In addition, pursuant to the employment contracts, the Company granted the officers options to purchase up to an aggregate of 400,000 shares of common stock.

 

On August 22, 2007, the Company approved a three-year extension of the employment contracts with two of its officers expiring on February 28, 2011. The employment agreements provided for minimum annual salaries with scheduled increases per annum to occur on every anniversary date of the contract and extension commencing on March 1, 2008. A signing bonus of options to purchase 150,000 shares granted to each executive were fully vested at the date of the grant and exercisable at $1.20 per share through August 22, 2017. Ten year options to purchase 50,000 shares of common stock are to be granted at fair market value on each anniversary date of the contract and extension commencing March 1, 2008. Termination pay of one year base salary based upon the scheduled annual salary of each executive officer for the next contract year, plus the amount of bonuses paid (or entitle to be paid) to the executive for the current fiscal year of the preceding fiscal year, whichever is higher.

 

On April 7, 2010, the Board of Directors approved a five-year extension of the employment contract of Dean L. Julia and Michael D. Trepeta to expire on March 1, 2015. The Board approved the continuation of each officer’s current salary and scheduled salary increases on March 1st of each year. The Board also approved a signing bonus of stock options to purchase 200,000 shares granted to each officer which is fully vested at the date of grant and exercisable at $.50 per share through April 7, 2020; ten-year stock options to purchase 100,000 shares of Common Stock to be granted to each officer at fair market value on each anniversary date of the contract and extension thereof commencing March 1, 2011; and termination pay of one year base salary based upon the scheduled annual salary of each executive officer for the next contract year plus the amount of bonuses paid or entitled to be paid to the executive for the current fiscal year or the preceding fiscal year, whichever is higher. In the event of termination, the executives will continue to receive all benefits included in the employment agreement through the scheduled expiration date of said employment agreement prior to the acceleration of the termination date thereof.

 

In July 2012, the Company approved and in January 2013 the Company implemented amending the employment agreements of Messrs. Julia and M. Trepeta to expire on February 28, 2017, subject to an automatic one- year renewal on March 1, 2013 and on each March 1st thereafter, unless the Employment Agreement is terminated in accordance with its terms on or before December 30th of the prior calendar year. In the event of termination without cause, the executives will continue to receive all salary and benefits included in the employment agreement through the scheduled expiration date of said employment agreement prior to the acceleration of the termination date thereof, plus one-year termination pay.

 

On May 28, 2013, the Company approved amending the employment agreements of Messrs. Julia and Trepeta to provide that each officer may choose an annual bonus equal to 5% of pre-tax earnings for the most recently completed year before deduction of annual bonuses paid to officers or, in the event majority control of the Company is acquired by a person or a group of persons during the prior fiscal year, the officer may choose to receive the aforementioned bonus or 1% of the control consideration paid by acquirer(s) to acquire majority control of the Company.

  

Separation Agreement

 

In April 2017, Michael Trepeta entered into a separation agreement with the Company pursuant to which he resigned as an executive officer and director. There is currently a vacancy in the Board of Directors of the Company. After his resignation, the Board changed Dean Julia’s title from Co-Chief Executive Officer to Chief Executive Officer.

 

Pursuant to Michael Trepeta’s separation agreement, Mr. Trepeta is entitled to the following benefits:

 

  · Six months’ coverage under the Company’s existing director/officer insurance policy;
  · Indemnification per existing employment agreement;
  · Expense reimbursement through May 31, 2017;
  · All options vested shall continue until their normal expiration date; and
  · Mutual releases.

 

Thomas Arnost

 

In December 2014, we entered into a three-year employment agreement with Thomas Arnost serving as Executive Chairman of the board. Mr. Arnost receives a monthly salary of $10,000 plus an annual grant of options for serving on the board of directors. In the event of his termination, by Mr. Arnost or by the company for cause, Mr. Arnost will receive his pay through the termination date. In the event that Mr. Arnost is terminated without cause, he shall be entitled to receive his salary paid through the end of the term of his agreement. Mr. Arnost may terminate the agreement at any time by giving three months’ prior written notice to our board of directors. Mr. Arnost will also be entitled to indemnification against all claims, judgments, damages, liabilities, costs and expenses (including reasonably legal fees) arising out of, based upon or related to his performance of services to us, to the maximum extent permitted by law.

  

Sean Trepeta

 

In December 2014, Mobiquity Networks entered into an employment agreement with Sean Trepeta, to serve as President of Mobiquity Networks as an employee at will. Mr. Trepeta, as a full-time employee, is to be paid a salary at the rate of $20,000 per month. Upon the execution of the agreement, he received 10-year options to purchase 1,500,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015, he will be entitled to a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and a further bonus of $125,000 for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12 million, it being understood that any revenues which do not have a 30% margin shall not count toward these totals. All options granted to Mr. Trepeta will become immediately vested in the event of a change in control of our Company or sale of substantially all of our assets. In the event we terminate Mr. Trepeta without cause, after six months of continued employment under the employment agreement, Mr. Trepeta is entitled to receive three months’ severance pay.

 

Paul Bauersfeld

 

In December 2014, we entered into an employment agreement with Paul Bauersfeld, our Chief Technology Officer, who is an employee at will. Mr. Bauersfeld, as a full-time employee, is to be paid a salary at the rate of $25,000 per month. Upon the execution of the agreement, he received 10-year options to purchase 1,000,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015, he will be entitled to a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and a further bonus of $125,000 for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12 million, it being understood that any revenues which do not have a 30% margin shall not count toward these totals. The foregoing compensatory arrangements with Mr. Bauersfeld is in addition to the non-statutory stock options to purchase 2,600,000 shares of our common stock previously granted to Mr. Bauersfeld. All options granted to Mr. Bauersfeld will become immediately vested in the event of a change of control of our company or sale of substantially all of our assets. In the event we terminate Mr. Bauersfeld without cause. Mr. Bauersfeld is entitled to receive six months’ severance pay.

 

Sean McDonnell

 

Sean McDonnell, our Chief Financial Officer, is an employee at will and is currently receiving a salary of $132,000 per annum.

 

TRANSACTIONS WITH MAJOR CUSTOMERS —

 

The Company sells its branded merchandise to a geographically diverse group of customers, performs ongoing credit evaluations of its customers and generally does not require collateral. During the three and nine months ended September 30, 2017 two customers accounted for approximately 41% and 40%, respectively, of net revenues and for the three and nine months ended September 30, 2016, a customer accounted for approximately 41% and 41%, respectively, of net revenues. The Company holds on hand certain items that are ordered on a regular basis.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
8. DISCONTINUED OPERATION
9 Months Ended
Sep. 30, 2017
Discontinued Operation  
DISCONTINUED OPERATION

In October 2017, the Company sold its Branded Merchandise segment. Management committed to a plan to sell this segment early September 2017, following a strategic decision to place greater focus on the Group’s key competencies – i.e. next generation mobile location data. By providing precise unique, at-scale location based data insights on consumer’s real-world behavior and trends for use in marketing and research.

 

 

A.Results of discontinued operation

 

   September 30, 2017   September 30, 2016 
         
Revenue  $1,764,513   $1,042,790 
Expenses   2,001,757    1,645,453 
(Loss) from discontinued operation, net  $(237,244)  $(602,663)

 

B.Cash flows from (used in) discontinued operation

 

   September 30, 2017   September 30, 2016 
         
Net cash used in operating activities  $(237,244)  $(602,663)
Net cash from investing activities  $   $ 
Net increase (decrease) cash flows for the period  $(202,470)  $(650,177 )

 

C.Effect of disposal on the financial position of the Group

 

      September 30, 2017    December 31, 2016  
              
Property, equipment and intangibles, net   $ (3,043 )  $(5,933 )
Inventories, net     (107,960 )   (79,291 )
Token liabilities     276,853     314,643  
Net assets and liabilities   $ 165,850    $229,419  
Consideration received, satisfied in cash   $ 150,000    $150,000  
XML 25 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
9. SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2017
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

There are no subsequent events required to be disclosed in the Notes to Financial Statements through the date of the report, except as follows: On October 17, 2017, the Company received relief of certain liabilities and cash consideration of $150,000 from the sale of specific assets fixed and intangibles of Ace Marketing & Promotions, Inc. relating to its promotional products distribution company. These assets were sold to a group represented by a principal of one of Ace’s customers. The sale also included various unpaid inventory, which was offset by certain liabilities. As a result of the asset sale of Ace, the Company is able to focus all of its management and employee effort and financial resources in developing the business of Mobiquity Networks, Inc., its wholly-owned subsidiary.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 30, 2017
Accounting Policies [Abstract]  
NATURE OF OPERATIONS

NATURE OF OPERATIONS – On September 10, 2013, Mobiquity Technologies, Inc. changed its name from Ace Marketing & Promotions, Inc. “the Company” or “Mobiquity”). We operate through two wholly-owned U.S. subsidiaries, namely, Mobiquity Networks, Inc. and Ace Marketing & Promotions, Inc. Mobiquity Networks owns 100% of Mobiquity Wireless S.L.U, a company incorporated in Spain. This corporation had an office in Spain to support our U.S. operations, which office was closed in the fourth quarter of 2016.

 

We operate a national location-based mobile advertising network that has developed a consumer-focused proximity network. Our integrated suite of proprietary location based mobile advertising technologies allows clients to execute more personalized and contextually relevant experiences, driving brand awareness and incremental revenue.

 

Mobiquity Technologies, Inc., a New York corporation (OTCQB: MOBQ). Through its wholly-owned subsidiary, Mobiquity Networks, Inc. has evolved and grown from a mobile advertising technology company focused on Driving Awareness and Foot-traffic throughout its indoor mall-based beacon network, into a next generation mobile location data and marketing company. The Company provides precise unique, at-scale location based data and insights on consumer’s real-world behavior and trends for use in marketing and research. With our combined data sets beacon data, and first party location data via our advanced Software Development Kit (SDK) utilizing multiple geo-location technologies; Mobiquity Networks provides one of the most accurate and scaled solution for mobile data collection and analysis. This should create several revenue streams, including, but not limited to; Push Notification Campaigns, Re-targeting Campaigns, Data Licensing, Audience Profiles, Attribution Reporting and Custom Research.

 

Ace Marketing is our legacy marketing and promotions business which provides integrated marketing services to our commercial customers. While Ace Marketing currently represents a substantial portion of our revenue, as anticipated the activity from Ace Marketing was a diminishing portion of corporate revenue as our attention is principally focused on developing and executing on opportunities in our Mobiquity Networks business. Certain assets and liabilities of Ace Marketing were sold in the fourth quarter of 2017 and will no longer be an operating entity for Mobiquity Technologies.

GOING CONCERN

GOING CONCERN - The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company's continued existence is dependent upon the Company's ability to obtain additional debt and/or equity financing to advance its new technology revenue stream. The Company has incurred losses for the three months and nine months ended September 30, 2017. As of September 30, 2017, the Company has an accumulated deficit of $60,135,881. The Company has had negative cash flows from operating activities of $3,232,160 for the nine months ended September 30, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

 

Management has plans to address the Company’s financial situation as follows:

 

In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan related to mobile location data. Management will continue to seek out both equity and debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders and investors will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going concern.

 

In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s efforts to raise equity and debt at acceptable terms or that the planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.

PRINCIPLES OF CONSOLIDATION

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Mobiquity Technologies, Inc., formerly known as Ace Marketing & Promotions, Inc., and its wholly owned subsidiaries, Mobiquity Networks, Inc., Ace Marketing, Inc., (which has had its name changed to Ace Marketing & Promotions, Inc.). All intercompany accounts and transactions have been eliminated in consolidation.

 

The Condensed Consolidated Balance Sheets as of September 30, 2017, the Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2017 and 2016 and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 have been prepared by us without audit, and in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly in all material respects our financial position as of September 30, 2017, results of operations for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine months ended September 30, 2017 and 2016. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year. We have evaluated subsequent events through the filing of this Form 10-Q with the Securities and Exchange Commission, and determined there have not been any events that have occurred that would require adjustments to our unaudited Condensed Financial Statements.

 

The information contained in this report on Form 10-Q should be read in conjunction with our Form 10-K for our fiscal year ended December 31, 2016.

ESTIMATES

ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS- The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

  · Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
     
  · Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
     
  · Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.

 

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3.

 

    Level 1   Level 2   Level 3   Total 
 Fair value of derivatives   $   $   $821,834   $821,834 

 

Embedded Conversion Features

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.

 

Derivative Financial Instruments

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 12 convertible notes issued totaling $2,136,500 which included a ratchet provision in the conversion price of $.05 or $.30 or a price equal to the last equity transaction completed by the Company as part of a subscription agreement. The notes have maturity dates ranging from July 31, 2017 – February 27, 2018. The Company also has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 500,000 warrants which included a ratchet provision in the conversion price of $.05 as part of a conversion of preferred AAA shares, and 1,000,000 warrants which included a ratchet provision in the conversion price of $.055 as part of a placement fee related to a note. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of September 30, 2017. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and derivative expense of $1,284,704 during the period ended September 30, 2017. As of September 30, 2017, the fair market value of the derivatives aggregated $821,834 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04%, and a discount rate of 0.00% to 1.47%.

 

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of September 30, 2017 and December 31, 2016. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

 

The carrying amounts of financial instruments, including accounts receivable, accounts payable and accrued liabilities, and promissory note, approximated fair value as of September 30, 2017 and December 31, 2016, because of the relatively short-term maturity of these instruments and their market interest rates. No instruments are carried at fair value.

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt instruments with a maturity of three months or less, as well as bank money market accounts, to be cash equivalents. As of September 30, 2017, and December 31, 2016, the balances were $213,268 and $193,934, respectively.

CONCENTRATION OF CREDIT RISK

CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and cash and cash equivalents.

 

Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited.

 

The Company places its temporary cash investments with high credit quality financial institutions. At times, the Company maintains bank account balances, which exceed FDIC limits. As of September 30, 2017, and December 31, 2016, the Company exceeded FDIC limits by $0 and $0, respectively.

REVENUE RECOGNITION

REVENUE RECOGNITION — The Company recognizes revenue, for all revenue streams, when it is realized or realizable and estimable in accordance with ASC 605, "Revenue Recognition". The Company will recognize revenue only when all of the following criteria have been met:

 

  · Persuasive evidence for an agreement exists;
  · Service has been provided;
  · The fee is fixed or determinable; and,
  · Collection is reasonably assured.

 

ACE MARKETING — Ace Marketing's revenue is recognized when title and risk of loss transfers to the customer and the earnings process is complete. In general, title passes to our customers upon the customer's receipt of the merchandise. Revenue is recognized on a gross basis since Ace Marketing has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk. Advance payments made by customers are included in customer deposits. Ace Marketing records all shipping and handling fees billed to customers as revenues and related costs as cost of goods sold, when incurred. Additional source of revenue, derived from emails/texts directly to consumers are recognized under contractual arrangements. Revenue from this advertising method is recognized at the time of service provided.

 

MOBIQUITY NETWORKS – Revenue is recognized with the billing of an advertising contract or data licensing sale. The customer signs a contract directly with us for an advertising campaign with mutually agreed upon term and is billed on the start date of the advertising campaign, which are normally in short duration periods. The second type of revenue is through the licensing of our data. Revenue from data can occur in two ways; the first is a direct feed, which is billed at the end of each month. The second way is through the purchasing of audience segments. When an audience segment is purchased, we bill the buyer upon reported usage, which is usually 30 days from the order date.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

ALLOWANCE FOR DOUBTFUL ACCOUNTS - Management must make estimates of the collectability of accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. As of September 30, 2017, and December 31, 2016, allowance for continuing operations doubtful accounts were $0.00 and $0.00, respectively.

INVENTORY

INVENTORY - Inventory is recorded at cost (First In, First Out) and is comprised of finished goods. The Company maintains an inventory on hand for its largest customer's frequent order items. All items held are branded for the customer, therefore are not available for public distribution. The Company has an agreement with this customer, for cost recovery, if vendor relationship is terminated. There have been minimal reserves placed on inventory, based on this arrangement. As of September 30, 2017, and December 31, 2016, the Company has reserved against $0.00 and $0.00, respectively.

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation is expensed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are being amortized using the straight-line method over the estimated useful lives of the related assets or the remaining term of the lease. The costs of additions and improvements, which substantially extend the useful life of a particular asset, are capitalized. Repair and maintenance costs are charged to expense. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the account and the gain or loss on disposition is reflected in operating income.

LONG-LIVED ASSETS

LONG LIVED ASSETS - Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The company recognized $223,487 impairment losses for the period ended December 31, 2016 and $12,127 for the nine months ended September 30, 2017.

 

WEBSITE TECHNOLOGY

WEBSITE TECHNOLOGY - Website technology developed during the prior years were capitalized for the period of development and testing. Expenditures during the planning stage and after implementation have been expensed in accordance with ASC 985.

ADVERTISING COSTS

ADVERTISING COSTS- Advertising costs are expensed as incurred. For the nine months ended September 30, 2017 and September 30, 2016, there were advertising costs of $0 and $3,129, respectively.

ACCOUNTING FOR STOCK BASED COMPENSATION

ACCOUNTING FOR STOCK BASED COMPENSATION. Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period. The Company uses the Black-Sholes option-pricing model to determine fair value of the awards, which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of the Company's common stock price over the expected term ("volatility") and the number of options for which vesting requirements will not be completed ("forfeitures"). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statements of operations. Refer to Note 6 "Stock Option Plans" in the Notes to Consolidated Financial Statements in this report for a more detailed discussion.

BENEFICIAL CONVERSIONS

BENEFICIAL CONVERSIONS - Debt instruments that contain a beneficial conversion feature are recorded as deemed interest to the holders of the convertible debt instruments. The beneficial conversion is calculated as the difference between the fair values of the underlying common stock less the proceeds that have been received for the debt instrument limited to the value received.

FOREIGN CURRENCY TRANSLATIONS

FOREIGN CURRENCY TRANSLATIONS - The Company's functional and reporting currency is the U.S. dollar. We owned a subsidiary in Europe. Our subsidiary's functional currency is the EURO. All transactions initiated in EUROs are translated into U.S. dollars in accordance with ASC 830-30, "Translation of Financial Statements," as follows:

 

  (i) Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.
     
  (ii) Fixed assets and equity transactions at historical rates.
     
  (iii) Revenue and expense items at the average rate of exchange prevailing during the period.

  

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders' equity as a component of comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income. The subsidiary has since been closed down with foreign operations now being conducted back in the United States.

INCOME TAXES

INCOME TAXES - Deferred income taxes are recognized for temporary differences between financial statement and income tax basis of assets and liabilities for which income tax or tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets, if it is more likely than not, that all or some portion of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
9 Months Ended
Sep. 30, 2017
Accounting Policies [Abstract]  
Fair value of derivatives
    Level 1   Level 2   Level 3   Total 
 Fair value of derivatives   $   $   $821,834   $821,834 
XML 28 R17.htm IDEA: XBRL DOCUMENT v3.8.0.1
3. CONVERTIBLE PROMISSORY NOTES (Tables)
9 Months Ended
Sep. 30, 2017
Debt Disclosure [Abstract]  
Summary of Convertible Promissory Notes

Summary of Convertible Promissory Notes:

 

  

September 30,

2017

  

December 31,

2016

 
Arnost Note  $   $322,000 
Cavu Notes net of $0 for 2017 and $8,379 for 2016   100,000    241,621 
Berg Notes (a)   50,000    3,722,000 
Investor Note, net of discounts   100,000    6,546,654 
Secured Debt (b) net of $425,311 for 2017 and $0 for 2016   2,326,189    -0- 
Total Debt   2,576,189    10,832,275 
Current portion of debt   2,576,189    10,832,275 
Long-term portion of debt  $   $ 

 

  (a) Between August and December 2015, the Company borrowed $3,675,000 from accredited investors. These loans are due and payable the earlier of December 31, 2016 or the completion of an equity financing of at least $2,500,000. Upon the sale of the unsecured promissory notes, the Company issued $1 of principal, one share of common stock and a warrant to purchase one share of common stock at an exercise price of $0.40 per share through August 31, 2017. Accordingly, an aggregate of 3,675,000 shares of common stock and warrants to purchase a like amount were issued in the last six months of 2015. Each noteholder has the right to convert the principal of their note and accrued interest thereon at a conversion price of $0.30 per share or at the noteholder’s option, into equity securities of the Company on the same terms as the last equity transaction completed by the Company prior to each respective conversion date.
     
  (b)

On February 28, 2017, the Company entered into an agreement with two non-affiliated persons to provide $1.6 million of short term secured debt financing in three monthly tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection with this transaction, the Company agreed to issue an origination fee of 3,200,000 warrants. Alexander Capital L.P. acted as Placement Agent and Advisor for this transaction. In August and September 2017, the noteholders exchanged their $1,100,000 of notes that were coming due in August 2017 plus a 30% premium and accrued interest for new six-month notes in the principal amount of $1,501,500. As additional consideration for the exchange, the Company issued 366,667 shares of common stock. The loss recognized on the extinguishment of debt is $960,177.

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 12 convertible notes issued totaling $2,136,500 which included a ratchet provision in the conversion price of $.05 or $.30 or a price equal to the last equity transaction completed by the Company as part of a subscription agreement. The notes have maturity dates ranging from July 31, 2017 – February 27, 2018. The Company also has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 500,000 warrants which included a ratchet provision in the conversion price of $.05 as part of a conversion of preferred AAA shares, and 1,000,000 warrants which included a ratchet provision in the conversion price of $.055 as part of a placement fee related to a note. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of September 30, 2017. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and derivative expense of $1,284,704 during the period ended September 30, 2017. As of September 30, 2017, the fair market value of the derivatives aggregated $821,834 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04%, and a discount rate of 0.00% to 1.47%.

  

In April 2016 through the filing date of this Form 10-Q, the Company issued and sold 12% unsecured promissory notes in the principal amount of $1,025,000, convertible at $0.20 per common share. Upon conversion, the note holders would receive 100% warrant coverage, exercisable at $0.20 per common share over a period of five years with cashless exercise provisions. These notes automatically convert in the event at least $5 million is raised in an equity financing. Prior to the mandatory conversion date, note holders have the option to convert the principal and accrued interest also on the same terms as the mandatory conversion and the Company has the option to prepay. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $2,892,291 and initial derivative expense of $1,284,704. As of December 31, 2016, the fair market value of these derivatives aggregated $126,275, using the following assumptions: estimated 0.3 year term, estimated volatility of 279%, and a discount rate of 0.51%. As of September 30, 2017, the fair market value of the derivatives aggregated $1,152,499 using the following assumptions: estimated 0.1 to 4.58-year term, estimated volatility of 92.80% to 338.04% and the discount rate of 0.00% to 1.47%

 

The Company raised $700,000 in the third quarter of 2016 from the sale of secured promissory notes in the principal amount of $700,000 from six accredited investors. Each Note was scheduled to be repaid on October 31, 2016, extended to December 15, 2016 but payment was not made. In lieu of interest on the Note, 4,900,000 restricted shares of common stock were issued to the Note Holders. At the option of the Note Holder, each Note shall be convertible at the lower of $.20 per common share or into securities on the same terms of the next completed equity offering of at least $10 million in gross proceeds. In the event the Note is converted into common stock, 100% warrant conversion shall be provided to the Note Holder for each share of common stock issued upon conversion. These warrants will have a term of three years and shall be exercisable at $.20 per common share. Prior to this offering, Thomas Arnost, Executive Chairman, has a secured interest in the amount of $322,000 in the assets of the Company and its subsidiaries. Mr. Arnost has agreed that the investors in this offering will have a pari passu first secured interest with Mr. Arnost in all assets of the Company and its subsidiaries. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $11,071. As of December 31, 2016, the fair market value of these derivatives aggregated $42,945, using the following assumptions: estimated volatility of 279.0%, and a discount rate of 0.51%. As of September 30, 2017, the fair market value of these derivatives aggregated $1,152,499, using the following assumptions: expected volatility of 92.80% to 338.04% and a discount rate of 0.00% to 1.47%.

 

In February 2017, The Company debt holders converted $3,672,000 of notes being converted at 0.05 per share into 73,440,000 shares of common stock.

 

In February 2017, the Company reported that all of its Series AA preferred stock and substantially all of its outstanding debt both secured and unsecured (approximately $12.1 million) have been converted into equity securities of the Company as outlined below. It should be noted that the capital transactions below were based on a premium to the average closing sale price of $0.045 per share during the 60 day period prior to February 08, 2017. The Company had outstanding 1,122,588 shares of newly designated Series AAA preferred stock and $1,350,000 of convertible notes. The convertible notes consist of $1,200,000 of secured notes and $150,000 of unsecured notes. Of the 1,122,588 shares of Series AAA preferred stock outstanding, 240,000 Series AA preferred stock with an original cost basis of $2.4 million were converted into Series AAA preferred stock. The remaining 882,588 shares of Series AAA preferred stock were issued in exchange for the conversion of principal and accrued interest of approximately $11,854,038 of unsecured debt. This conversion resulted in a loss on extinguishment of debt of $2,706,197. The terms of the Series AAA preferred stock can be summarized as follows:

 

The price of each preferred share shall be, at the option of the holder, convertible into 100 shares of Common Stock. If the preferred shares are converted, the subscriber will then receive 100% warrant coverage, with each warrant exercisable at $.05 per share with a cash payment to the Company through the close of business on December 31, 2019. The preferred shares have no voting or other preferences except as required by law other than the right of conversion described above and a liquidation preference equal to $.01 per share.

 

In February 2017, Thomas Arnost, our Executive Vice Chairman, and another principal stockholder agreed to convert letters of credit in the principal amount of $2,700,000 and $322,000 of secured debt into shares of common stock at the then marketing price of $.05 per share. Accrued interest on these obligations were either previously converted into our common stock or were upon conversion of the principal, converted into common stock at the fair market value of our common stock at each interest accrual date.

 

Between August and September 2017, the Company issued $750,000 of secured notes due in six months to various investors. The notes are convertible at $.05 per share through the maturity date, subject to adjustment in the event of default. A total of 750,000 origination shares of common stock were issued to the noteholders. Thomas Arnost, Chairman of the Company, invested $100,000 in the loan transaction.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
5. STOCK-BASED COMPENSATION (Tables)
9 Months Ended
Sep. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of stock-based compensation expense
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2017     2016     2017     2016  
Employee stock-based compensation - option grants   $ 91,271     $ 142,040     $ 394,129     $ 437,699  
Employee stock-based compensation - stock grants                        
Non-Employee stock-based compensation - option grants           21,500       11,500       75,250  
Non-Employee stock-based compensation - stock grants                        
Non-Employee stock-based compensation-stock warrant                 111,000        
Total   $ 91,271     $ 163,540     $ 516,629     $ 512,949  
XML 30 R19.htm IDEA: XBRL DOCUMENT v3.8.0.1
6. STOCK OPTION PLAN (Tables)
9 Months Ended
Sep. 30, 2017
Options  
Assumptions used
    Three Months Ended
September 30
    Nine Months Ended
June 30
 
    2017     2016     2017     2016  
Expected volatility     0.00%       131.39%       146.77%       134.23%  
Expected dividend yield                        
Risk-free interest rate     0.00%       0.97%       1.89%       1.24%  
Expected term (in years)     0.00%       5.00       5.00       5.00  
Schedule of options outstanding
    Share     Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
 
Outstanding, January 1, 2017     18,315,001       0.41       5.14     $ 5,625  
Granted     250,000       0.05       4.3        
Exercised                        
Cancelled & Expired     (1,050,000 )                  
                                 
Outstanding, September 30, 2017     17,515,001       0.39       4.68     $ 2,000  
                                 
Options exercisable, September 30, 2017     17,037,918       0.39       4.65     $ 2,000  
Warrants  
Assumptions used
   Three Months Ended
September 30
   Nine Months Ended
September 30
 
   2017   2016   2017   2016 
Expected volatility   0.00%    0.00%    151.49%    0.00% 
Expected dividend yield                
Risk-free interest rate   0.00%    0.00%    1.88%    0.00% 
Expected term (in years)   0.00        4.75     
Schedule of warrants outstanding
      Share     Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
 
  Outstanding, January 1, 2017       21,252,734     $ 0.48       1.40     $  
  Granted       5,700,000     $ 0.07       3.50        
  Exercised       (1,916,667 )                  
  Expired       (3,492,221 )                  
  Outstanding, September 30, 2017       21,543,846     $ 0.37       1.51        
                                     
  Warrants exercisable, September 30, 2017       21,543,846     $ 0.37       1.51     $  
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.8.0.1
7. COMMITMENTS AND CONTINGENCIES (Tables)
9 Months Ended
Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract]  
Operating lease future minimum payments
YEARS ENDING DECEMBER 31,     
 2017     
 2018     
 2019 and thereafter     
     $ 
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.8.0.1
8. DISCONTINUED OPERATION (Tables)
9 Months Ended
Sep. 30, 2017
Discontinued Operation Tables  
Discontinued operation

A.Results of discontinued operation

 

   September 30, 2017   September 30, 2016 
         
Revenue  $1,764,513   $1,042,790 
Expenses   2,001,757    1,645,453 
(Loss) from discontinued operation, net  $(237,244)  $(602,663)

 

B.Cash flows from (used in) discontinued operation

 

   September 30, 2017   September 30, 2016 
         
Net cash used in operating activities  $(237,244)  $(602,663)
Net cash from investing activities  $   $ 
Net increase (decrease) cash flows for the period  $(202,470)  $(650,177 )

 

C.Effect of disposal on the financial position of the Group

 

      September 30, 2017    December 31, 2016  
              
Property, equipment and intangibles, net   $ (3,043 )  $(5,933 )
Inventories, net     (107,960 )   (79,291 )
Token liabilities     276,853     314,643  
Net assets and liabilities   $ 165,850    $229,419  
Consideration received, satisfied in cash   $ 150,000    $150,000  
XML 33 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
1. Summary of Significant Accounting Policies (Details - Fair value)
Sep. 30, 2017
USD ($)
Fair value of derviatives $ 821,834
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]  
Fair value of derviatives 0
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]  
Fair value of derviatives 0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member]  
Fair value of derviatives $ 821,834
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
1. Summary of Significant Policies (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Dec. 31, 2016
Dec. 31, 2015
Accounting Policies [Abstract]            
Accumulated deficit $ (60,135,881)   $ (60,135,881)   $ (51,182,093)  
Cash flows from operations     (3,390,656) $ (5,558,382)    
Change in derivatives 1,608,259 $ 1,444,861 2,892,290 2,201,696    
Derivative expense 0 0 1,284,704 565,780    
Fair market value of derivatives 821,834   821,834      
Cash and cash equivalents 213,268 $ (2,440,662) 213,268 (2,440,662) 193,934 $ 130,489
Cash over FDIC insurance limits 0   0   0  
Allowance for doubtful accounts 0   0   0  
Asset impairment charges     12,127 0 0  
Inventory reserve $ 0   0   $ 0  
Advertising costs     $ 0 $ 3,129    
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
2. Loss Per Share (Details Narrative) - shares
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2017
Net Loss Per Common Share:    
Number of anti-dilutive common shares 100,796,390 100,796,390
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
3. Convertible Promissory Notes (Details) - USD ($)
Sep. 30, 2017
Dec. 31, 2016
Secured Debt [1] $ 2,326,189 $ 0
Total debt 2,576,189 10,832,275
Current portion of debt 2,576,189 10,832,275
Long-term portion of debt 0 0
Arnost Note    
Total debt 0 322,000
Cavu Notes    
Total debt 100,000 241,621
Berg Notes    
Total debt [2] 50,000 3,722,000
Investor Note [Member]    
Total debt $ 100,000 $ 6,546,654
[1] On February 28, 2017, the Company entered into an agreement with two non-affiliated persons to provide $1.6 million of short term secured debt financing in three monthly tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection with this transaction, the Company agreed to issue an origination fee of 3,200,000 warrants. Alexander Capital L.P. acted as Placement Agent and Advisor for this transaction. In August and September 2017, the noteholders exchanged their $1,100,000 of notes that were coming due in August 2017 plus a 30% premium and accrued interest for new six-month notes in the principal amount of $1,501,500. As additional consideration for the exchange, the Company issued 366,667 shares of common stock. The loss recognized on the extinguishment of debt is $960,177.
[2] Between August and December 2015, the Company borrowed $3,675,000 from accredited investors. These loans are due and payable the earlier of December 31, 2016 or the completion of an equity financing of at least $2,500,000. Upon the sale of the unsecured promissory notes, the Company issued $1 of principal, one share of common stock and a warrant to purchase one share of common stock at an exercise price of $0.40 per share through August 31, 2017. Accordingly, an aggregate of 3,675,000 shares of common stock and warrants to purchase a like amount were issued in the last six months of 2015. Each note holder has the right to convert the principal of their note and accrued interest thereon at a conversion price of $0.30 per share or at the noteholder's option, into equity securities of the Company on the same terms as the last equity transaction completed by the Company prior to each respective conversion date.
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.8.0.1
3. Convertible Promissory Notes (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Dec. 31, 2016
Gain on embedded derivative $ 1,608,259 $ 1,444,861 $ 2,892,290 $ 2,201,696  
Derivative expense 0 0 1,284,704 565,780  
Fair market value of derivatives 821,834   821,834    
Loss on extinguishment of debt (960,177) $ 0 (3,666,374) $ 0  
Tom Arnost [Member] | Letters of Credit [Member]          
Debt converted, amount converted     2,700,000    
Tom Arnost [Member] | Secured Debt [Member]          
Debt converted, amount converted     $ 322,000    
Series AA Preferred Stock [Member] | AAA Preferred Stock [Member]          
Stock converted, shares converted     240,000    
Stock converted, amount converted     $ 2,400,000    
Convertible Promissory Notes [Member]          
Debt converted, amount converted     $ 3,672,000    
Debt converted, shares issued     73,440,000    
Unsecured Debt [Member] | Series AAA Preferred Stock [Member]          
Debt converted, amount converted     $ 11,854,062    
Debt converted, shares issued     882,588    
Loss on extinguishment of debt     $ (2,706,197)    
12 Convertible Notes [Member]          
Debt face value 2,751,500   $ 2,751,500    
Convertible debt conversion rate range     .$05 to $.30 per share    
Maturity date ranges     July 31, 2017 – February 27, 2018    
Gain on embedded derivative     $ 2,892,290    
Derivative expense     1,284,704    
Fair market value of derivatives 821,834   821,834    
Cavu Notes          
Unamortized discount 0   0   $ 8,379
Secured Debt [Member]          
Unamortized discount 425,311   425,311   0
Debt converted, amount converted     $ 1,501,500    
Debt converted, shares issued     366,667    
12% Unsecured Promissory Notes [Member]          
Debt face value         1,025,000
Gain on embedded derivative     $ 2,892,290    
Derivative expense     1,284,704    
Fair market value of derivatives 821,834   821,834   126,275
Secured Promissory Notes [Member]          
Debt face value         700,000
Gain on embedded derivative     2,892,290    
Fair market value of derivatives 821,834   821,834   $ 42,945
Secured Notes [Member]          
Debt face value $ 750,000   $ 750,000    
Stock issued with secured notes, shares     750,000    
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.8.0.1
4. Stockholders' Deficit (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Jun. 30, 2017
Sep. 30, 2017
Sep. 30, 2016
Dec. 31, 2016
Class of Stock [Line Items]              
Gain on settlement of debt         $ (3,666,374) $ 0  
Common Stock [Member]              
Class of Stock [Line Items]              
Stock issued for services, shares 0 0 3,800,000        
Stock issued for services, value $ 0 $ 0 $ 314,310        
Stock issued for interest, shares issued 32,544   3,919,620        
Stock issued for interest, value $ 3,074   $ 194,790        
Stock issued for back rent, shares             1,000,000
Stock issued for back rent, value             $ 20,000
Gain on settlement of debt             $ 36,177
AAA Preferred Stock [Member]              
Class of Stock [Line Items]              
Stock issued for interest, shares issued     47,588        
Stock issued for interest, value     $ 475,841        
AAA Preferred Stock [Member] | Common Stock [Member]              
Class of Stock [Line Items]              
Conversion of stock, shares converted       5,000 15,000    
Conversion of stock, shares issued       500,000 1,500,000    
Warrants issued         1,500,000    
Exercise of Warrants [Member]              
Class of Stock [Line Items]              
Stock issued for exercise of warrants, shares issued     1,916,667       11,908,335
Stock issued for exercise of warrants, value     $ 95,834       $ 594,417
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.8.0.1
5. Stock-Based Compensation (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Share-based compensation $ 91,271 $ 163,540 $ 516,629 $ 512,949
Employee stock-based compensation - Option Grants        
Share-based compensation 91,271 142,040 394,129 437,699
Employee stock-based compensation - Stock Grants        
Share-based compensation 0 0 0 0
Non-Employee stock-based compensation - Option Grants        
Share-based compensation 0 21,500 11,500 75,250
Non-Employee stock-based compensation - Stock Grants        
Share-based compensation 0 0 0 0
Non-Employee stock-based compensation - Stock Warrant        
Share-based compensation $ 0 $ 0 $ 111,000 $ 0
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.8.0.1
5. Stock-Based Compensation (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]        
Share-based compensation $ 91,271 $ 163,540 $ 516,629 $ 512,949
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.8.0.1
6. Stock Option Plan (Details - Assumptions)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Options        
Expected volatility 0.00% 131.39% 146.77% 134.23%
Expected dividend yield 0.00% 0.00% 0.00% 0.00%
Risk-free interest rate 0.00% 0.97% 1.89% 1.24%
Expected term (in years)   5 years 5 years 5 years
Warrants        
Expected volatility 0.00% 0.00% 151.49% 0.00%
Expected dividend yield 0.00% 0.00% 0.00% 0.00%
Risk-free interest rate 0.00% 0.00% 1.88% 0.00%
Expected term (in years)     4 years 9 months  
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.8.0.1
6. Stock Option Plan (Details - Option Activity) - Options
9 Months Ended
Sep. 30, 2017
USD ($)
$ / shares
shares
Shares  
Shares outstanding - beginning | shares 18,315,001
Shares granted | shares 250,000
Shares exercised | shares 0
Shares cancelled and expired | shares (1,050,000)
Shares outstanding - ending | shares 17,515,001
Shares exercisable | shares 17,037,918
Weighted Average Exercise Price  
Weighted average exercise price - beginning | $ / shares $ 0.41
Weighted average exercise price - shares granted | $ / shares 0.05
Weighted average exercise price - shares Exercised | $ / shares
Weighted average exercise price - shares Cancelled | $ / shares
Weighted average exercise price - ending | $ / shares 0.39
Weighted average exercise price - exercisable | $ / shares $ 0.39
Weighted Average Remaining Contractural Term  
Weighted average contractural term - beginning 5 years 1 month 21 days
Weighted average contractural term - granted 4 years 3 months 19 days
Weighted average contractural term - ending 4 years 8 months 5 days
Weighted average contractural term - exercisable 4 years 7 months 24 days
Aggregate Intrinsic Value  
Aggregate intrinsic value - beginning | $ $ 5,625
Aggregate intrinsic value - granted | $ 0
Aggregate intrinsic value - ending | $ 2,000
Aggregate intrinsic value - exercisable | $ $ 2,000
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.8.0.1
6. Stock Options Plan (Details - Warrants Outstanding) - Warrants
9 Months Ended
Sep. 30, 2017
USD ($)
$ / shares
shares
Shares  
Shares outstanding - beginning | shares 21,252,734
Shares granted | shares 5,700,000
Shares exercised | shares (1,916,667)
Shares expired | shares (3,492,221)
Shares outstanding - ending | shares 21,543,846
Shares exercisable | shares 21,543,846
Weighted Average Exercise Price  
Weighted average exercise price - beginning $ 0.48
Weighted average exercise price - shares granted 0.07
Weighted average exercise price - shares Exercised 0.00
Weighted average exercise price - shares expired 0.00
Weighted average exercise price - ending 0.37
Weighted average exercise price - exercisable $ 0.37
Weighted Average Remaining Contractural Term  
Weighted average contractural term - beginning 1 year 4 months 24 days
Weighted average contractural term - granted 3 years 6 months
Weighted average contractural term - ending 1 year 5 months 3 days
Weighted average contractural term - exercisable 1 year 5 months 3 days
Aggregate Intrinsic Value  
Aggregate intrinsic value - beginning | $ $ 0
Aggregate intrinsic value - granted $ 0
Aggregate intrinsic value - ending | $ $ 0
Aggregate intrinsic value - exercisable | $ $ 0
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.8.0.1
6. Stock Option Plan (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Unamortized compensation cost related to stock option awards $ 290,783  
2016 Plan [Member]    
Shares authorized for plan 10,000,000  
Options    
Weighted average grant date fair value of options $ 0.05 $ 0.10
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.8.0.1
7. Commitments and Contingencies (Details)
Sep. 30, 2017
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Minimum lease commitment 2017 $ 0
Minimum lease commitment 2018 0
Minimum lease commitment 2019 and thereafter 0
Minimum lease commitment $ 0
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.8.0.1
7. Commitments and Contingencies (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Rent and real estate expense $ 36,499 $ 886,312 $ 1,090,118 $ 2,801,090
Mall Rents [Member]        
Rent and real estate expense $ 0 $ 825,218 $ 969,521 $ 2,634,837
Sales Revenue, Net [Member]        
Concentration risk percentage 41.00% 41.00% 40.00% 41.00%
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.8.0.1
8. Discontinued Operation (Details) - USD ($)
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Dec. 31, 2016
Results of discontinued operation      
Revenue $ 1,764,513 $ 1,042,790  
Expenses 2,001,757 1,645,453  
(Loss) from discontinued operation, net (237,245) (602,663)  
Cash flows from (used in) discontinued operation      
Net cash used in operating activities 3,390,656 5,558,382  
Net cash from investing activities 0 253,145  
Net increase (decrease) cash flows for the period (152,209) $ (2,571,151)  
Effect of disposal on the financial position of the Group      
Property, equipment and intangibles, net (3,043)   $ (5,933)
Inventories, net (107,960)   (79,291)
Token liabilities 276,853   314,643
Net assets and liabilities 165,850   229,419
Consideration received, satisfied in cash $ 150,000   $ 150,000
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