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MOBIQUITY TECHNOLOGIES, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Mobiquity Technology, Inc.
Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Capitalized software development costs | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity (deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest - related party | ||||||||
| Contract liabilities | ||||||||
| Debt, current portion, net of debt discount | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Debt, less current portion | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Equity | ||||||||
| AA and AAA preferred stock; $ par value, shares authorized, shares issued and outstanding | ||||||||
| Preferred stock Series C; $ par value, shares authorized, shares and outstanding | ||||||||
| Preferred stock Series E; $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock; $ par value, shares authorized, and shares issued and outstanding | ||||||||
| Treasury stock $ par value shares outstanding at December 31, 2022 and December 31, 2021 | ( | ) | ( | ) | ||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Mobiquity Technology, Inc.
Consolidated Statements of Operations
| Three Months Ended | ||||||||
| March 31, | ||||||||
| Unaudited | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| General and administrative expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Loss on debt extinguishment, net | ( | ) | ||||||
| Total other income - net | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share - basic | $ | ( | ) | $ | ( | ) | ||
| Loss per share - diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding - basic | ||||||||
| Weighted average number of shares outstanding - diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
Mobiquity Technology, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Series AAA Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid-in | Treasury Shares | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Incentive common stock shares and warrants issued with debt | – | – | – | |||||||||||||||||||||||||||||||||||||||||
| Common stock and pre-funded warrants issued under public offering, net of issuance costs | – | – | – | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued under cashless warrant exercises and exercise of pre-funded warrants | – | – | ( | ) | – | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Series AAA Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid-in | Treasury Shares | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| December 31, 2021 (restated) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||
| Stock issued for services | – | – | – | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt to common stock and warrants | – | – | – | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, at March 31, 2022 (restated) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
Mobiquity Technology, Inc.
Consolidated Statements of Cash Flows
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangibles | ||||||||
| Amortization of debt discounts | ||||||||
| Stock-based compensation | ||||||||
| Provision for doubtful accounts | ||||||||
| Loss on debt extinguishment - related party | ||||||||
| Stock issued for services | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Increase in software development costs | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Proceeds from the issuance of debt, net of discounts and debt issuance costs | ||||||||
| Issuance of common stock and pre-funded warrants, net of issuance costs | ||||||||
| Repayment on notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Issuance of incentive shares with debt recorded as debt discount | $ | $ | ||||||
| Warrants issued with debt recorded as debt discount | $ | $ | ||||||
| Common stock issued under cashless warrant exercises | $ | $ | ||||||
| Conversion of convertible debt to common stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MOBIQUITY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Mobiquity Technologies, Inc. (“Mobiquity,” “we,” “our” or “the Company”), and its operating subsidiaries, is a next generation location data intelligence company. The Company provides precise unique, at-scale location data and insights on consumer’s real-world behavior and trends for use in marketing and research. We provide one of the most accurate and scaled solutions for mobile data collection and analysis, utilizing multiple geo-location technologies. The Company is seeking to implement several new revenue streams from its data collection and analysis, including, but not limited to, Advertising, Data Licensing, Footfall Reporting, Attribution Reporting, Real Estate Planning, Financial Forecasting and Custom Research. We also are a developer of advertising and marketing technology focused on the creation, automation, and maintenance of an advertising technology operating system (or ATOS). The ATOS platform blends artificial intelligence (or AI) and machine learning (ML) based optimization technology for automatic ad serving that manages and runs digital advertising campaigns.
Mobiquity Technologies, Inc. was incorporated in the State of New York and has the following subsidiaries:
Mobiquity Networks, Inc.
Mobiquity Networks, Inc. is a wholly owned subsidiary of Mobiquity Technologies, Inc., commencing operations in January 2011 and incorporated in the State of New York. Mobiquity Networks started and developed as a mobile advertising technology company focused on driving foot-traffic throughout its indoor network and has evolved and grown into a next generation data intelligence company. Mobiquity Networks, Inc. operates our data intelligence platform business.
Advangelists, LLC
Advangelists LLC is a wholly owned subsidiary of Mobiquity Technologies, Inc., acquired through a merger transaction in December 2018, incorporated in the State of Delaware, and operates our ATOS platform business.
Liquidity, Going Concern and Management’s Plans
These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying condensed consolidated financial statements, for the three months ended March 31. 2023, the Company is reporting the following:
| · | Net loss of $ |
| · | Net cash used in operations of $ |
Additionally, at March 31, 2023, the Company is reporting the following:
| · | Accumulated deficit of $ |
| · | Stockholders’ equity of $ |
| · | Working capital deficit of $ |
We manage liquidity risk by reviewing, on an ongoing
basis, our sources of liquidity and capital requirements. The Company has cash on hand of $
| 7 |
The Company has incurred significant losses since its inception in 1998 and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the three months ended March 31, 2023, and our current capital structure including equity-based instruments and our obligations and debts.
Without sufficient revenues from operations, if the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company may explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these condensed consolidated financial statements are issued. These condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| · | Execution of business plan focused on technology growth and improvement, |
| · | Seek out equity and/or 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. |
| · | Continuing to explore and execute prospective partnering or distribution opportunities, |
| · | Identifying unique market opportunities that represent potential positive short-term cash flow. |
Coronavirus (“COVID-19”) Pandemic
During the year ended December 31, 2022, the Company’s
financial results and operations were adversely impacted by the COVID-19 pandemic. The Company is a data location company with a specialty
to drive traffic to retail stores. In the prior two (2) years, the Company suffered from the effects of the pandemic due to lack of traffic
to retail stores related to mandated stay-at-home restrictions and the Company drastically curtailed its operations. The extent to which
the Company’s future financial results could be impacted by the COVID-19 pandemic depends on future developments that are highly
uncertain and cannot be predicted at this time. The pandemic also had an effect on the Company’s ability to attain new customers
or retain existing customers, and to collect on its outstanding accounts receivable, resulting in an increase of its allowance for doubtful
accounts in fiscal 2022, and the quarter ended March 31, 2023, of approximately $
These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
During the three months ended March 31, 2023, the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic.
| 8 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (U.S. GAAP) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (SEC). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2023, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023.
Management acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
Principles of Consolidation
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Business Segments and Concentrations
The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business as a single reporting segment.
Customers in the United States accounted for 100% of our revenues. We do not have any property or equipment outside of the United States.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including stock-based compensation and deferred tax asset valuation allowance, and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and changes in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks and the potential of overall business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and net earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s service offerings. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
| 9 |
Fair Value of Financial Instruments
The Company accounts for financial instruments at fair value, which as is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. There are three levels of inputs that may be used to measure fair value:
| · | Level 1—Valuation based on unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access; | |
| · | Level 2—Valuation based on observable quoted prices for similar assets and liabilities in active markets; and | |
| · | Level 3—Valuation based on unobservable inputs that are supported by little or no market activity, which require management’s best estimate of what market participants would use as fair value. |
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management.
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include accounts receivable, accounts payable and accrued expenses, and contract liabilities. On March 31, 2023, and December 31, 2022, the carrying amounts of these financial instruments approximated their fair values due to the short-term nature of these instruments. The fair value of the Company’s debt approximates its carrying value based on current financing rates available to the Company and its short-term nature.
The Company does not have any other financial or non-financial assets or liabilities that would be characterized as Level 1, Level 2, or Level 3 instruments.
Cash and Cash Equivalents and Concentrations of Risk
For purposes of presentation in the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.
On March 31, 2023, and December 31, 2022, the Company did not have any cash equivalents.
The Company is exposed to credit risk on its
cash in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal
Deposit Insurance Company (FDIC), which is $250,000. As of March 31, 2023, and December 31, 2022, the Company had not experienced
any losses on cash balances in excess of the FDIC insured limits. Any loss incurred or a lack of access to funds could have a
significant impact on the Company’s consolidated financial condition, results of operations, and cash flows. At March 31,
2023, the Company exceeded FDIC insured limits by approximately $
For the three months ended March 31, 2023,
and year ended December 31, 2022, sales of our products to two and four customers generated approximately
Accounts Receivable
Accounts receivable represent customer obligations
under normal trade terms and are stated at the amount management expects to collect from outstanding customer balances. Credit is extended
to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable.
The Company does not require collateral. Four and six of our customers combined accounted for approximately
The Company had net accounts receivable of $
| 10 |
Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for doubtful accounts. The Company provides its allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
The allowance for doubtful accounts was approximately
$
Bad debt expense (recovery) is recorded as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations.
Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of Accounting Standards Codification (ASC) 360-10-35-15 Impairment or Disposal of Long-Lived Assets. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets and compares this to the carrying amounts of the assets.
If impairment is indicated based on a comparison
of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.
Expenditures for repairs and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in current results of operations.
Goodwill
The Company’s goodwill represents the excess of the consideration transferred for the acquisition of Advangelists, LLC in December 2018 over the fair value of the underlying identifiable net assets acquired. Goodwill is not amortized but instead, it is tested for impairment at least annually. In the event that management determines that the value of goodwill has become impaired, the Company will record a charge in an amount equal to the excess of the reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit during the fiscal quarter in which the determination is made.
The Company performs its annual impairment tests
of goodwill as of December 31st of each year, or more frequently, if certain indicators are present. Goodwill is required to be tested
for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level, which
is referred to as a component. Management identifies its reporting units by assessing whether components (i) have discrete financial information
available, (ii) engage in business activities, and (iii) whether a segment manager regularly reviews the component’s operating results.
Net assets and goodwill of acquired businesses are allocated to the reporting unit associated with the acquired business based on the
anticipated organizational structure of the combined entities. If two or more components are deemed economically similar, those components
are aggregated into one reporting unit when performing the annual goodwill impairment review. The Company has one reporting unit as of
March 31, 2023 and December 31, 2022.
| 11 |
Intangible Assets
The majority of the Company’s intangible
assets consist of customer relationship and the ATOS platform technology obtained through its acquisition of Advangelists LLC. The Company
amortizes its identifiable definite-lived intangible assets over an estimated useful life of
Software Development Costs
In accordance with ASC 985-20, Costs of Software to Be Sold, Leased,
or Marketed, the Company records the cost of planning, designing, and establishing the technological feasibility of computer software
intended for resale as research and development costs and charges those costs to operations when incurred and are included in general
and administrative expenses on the condensed consolidated statements of operations. After technological feasibility has been established,
the costs of producing a marketable product and product masters are capitalized and amortized on a straight-line basis over the estimated
useful life of the software, which is expected to be five years, beginning at the date of general release to customers. The Company began
capitalizing costs associated with the development of its Ad Tech Operating System for Publishers platform in January 2023 when technological feasibility was deemed to have been established. Total software development costs capitalized for the quarter
ended March 31, 2023 were $
Derivative Financial Instruments
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic No. 480, (ASC 480), Distinguishing Liabilities from Equity and FASB ASC Topic No. 815, (ASC 815) Derivatives and Hedging.
In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from U.S. GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance was adopted by the Company as of January 1, 2022.
Terms of financial instruments are reviewed to
determine whether or not they contain embedded derivative instruments that are required to be accounted for separately from the host contract
under ASC 815 and ASU 2020-06 and recorded on the balance sheet at fair value. Derivative liabilities are remeasured to reflect fair value
at each period end, with any increase or decrease in the fair value being recorded in results of operations. The Company generally incorporates
a binomial model to determine fair value. Upon conversion of a debt instrument where an embedded conversion option has been bifurcated
and accounted for separately as a derivative liability, the Company records the resulting shares issued at fair value, derecognizes all
related debt principal, derivative liability, and debt discount, and recognizes a net gain or loss on debt extinguishment. Equity instruments
that are initially classified as equity that become subject to reclassification under ASC 815 are reclassified to liabilities at the fair
value of the instrument on the reclassification date. The Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risk. As of March 31, 2023 and December 31, 2022, the Company had
Debt Issuance Costs and Debt Discounts
Debt discounts, debt issuance costs paid to lenders
or third parties, and other original issue discounts on debt, are recorded as debt discount or debt issuance costs and amortized to interest
expense in the condensed consolidated statements of operations, over the term of the underlying debt instrument, using the effective interest
method, with the unamortized portion reported net with related principal outstanding on the condensed consolidated balance sheet. For
the quarter ended March 31, 2023, the Company recorded $
| 12 |
Revenue Recognition
The Company’s revenues are generated from internet advertising, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606). In accordance with ASC 606, revenue is recognized when promised services are transferred to a customer. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:
Identify the contract with a customer.
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identify the performance obligations in the contract.
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services (performance obligations), the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation. Currently, the Company does not have any contracts that contain multiple performance obligations.
Determine the transaction price.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of March 31, 2023 and December 31, 2022 contained a significant financing component.
Allocate the transaction price to performance obligations in the contract.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation.
Recognize revenue when or as the Company satisfies a performance obligation.
The Company satisfies performance obligations at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised service to a customer. Under both managed services arrangements or self-service arrangements, the Company’s promised services under the contracts include identification, bidding and purchasing of advertisement opportunities. The Company also generally has discretion in establishing the pricing of the ads. Since the Company is controlling the promise to deliver the contracted services, the Company is considered the principal in all arrangements for revenue recognition purposes.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days.
| 13 |
Contract Liabilities
Contract liabilities represent deposits made by
customers before the satisfaction of performance obligations and recognition of revenue. Upon completion of the performance obligation(s)
that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue
is recognized. As of March 31, 2023 and December 31, 2022, there were $
Revenues
All revenues recognized were derived from internet advertising for the quarter ended March 31, 2023, and the year ended December 31, 2022.
Advertising
Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expenses in the consolidated statements of operations.
The Company incurred $
Stock-Based Compensation
The Company accounts for our stock-based compensation, including stock options and common stock warrants, under ASC 718 Compensation – Stock Compensation, using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the requisite service period for employee awards, which is usually the vesting period, and when the goods are obtained or services are received, for nonemployee awards. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also applies to transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
In connection with certain financing, consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards.
The fair value of stock-based compensation is generally determined using the Black-Scholes valuation model as of the date of the grant or the date at which the performance of the services is completed (measurement date).
When determining fair value of stock-based compensation, the Company considers the following assumptions in the Black-Scholes model:
| · | Exercise price, |
| · | Expected dividends, |
| · | Expected volatility, |
| · | Risk-free interest rate; and |
| · | Expected life of option |
Income Taxes
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, Income Taxes (ASC 740). Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that all or some portion of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as gain or loss in the period that includes the enactment date.
| 14 |
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740. Using that guidance, tax positions initially need to be recognized in the condensed consolidated financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of March 31, 2023 and December 31, 2022, the Company did not identify any uncertain tax positions that qualify for either recognition or disclosure in the condensed consolidated financial statements.
The Company recognizes interest and penalties, if any, related to recognized uncertain income tax positions, in other expense. No interest and penalties related to uncertain income tax positions were recorded for the three months ended March 31, 2023 and 2022. Open tax years subject to examination by the Internal Revenue Service generally remain open for three years from the filing date. Tax years subject to examination by the state jurisdictions generally remain open for up to four years from the filing date.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Reclassifications
Certain reclassifications were made to the 2022 condensed consolidated financial statements to conform to 2023 presentation.
Recent Issued Accounting Pronouncements
We consider the applicability and impact of all new accounting pronouncements on our consolidated financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the Financial Accounting Standards Board (FASB) through the date these condensed consolidated financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective, that when adopted, will have a material impact on the condensed consolidated financial statements of the Company.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: On September 30, 2022, the FASB issued ASU 2022-03 (ASU 2022-03), which clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security. The ASU also requires specific disclosures related to such an equity security, including (1) the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions, and (3) any circumstances that could cause a lapse in the restrictions. ASU 2022-03 clarifies that a “contractual restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value (i.e., the entity should not apply a discount related to the contractual sale restriction, as stated in ASC 820-10-35-36B as amended by the ASU). The ASU also prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. For public business entities, ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of ASU 2022-03 on its consolidated financial statements and related disclosures.
| 15 |
Recently Adopted Accounting Pronouncements
Financial Instrument – Credit Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. In May 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt ASU No. 2019-05 in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date of ASU 2016-13. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2023 and the adoption of the guidance did not have a significant impact on its condensed consolidated financial statements and disclosures.
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). Under ASU 2021-08, an acquirer in a business combination must apply ASC 606 principles when recognizing and measuring acquired contract assets and contract liabilities. The provisions of ASU 2021-08 are applicable for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company adopted ASU 2021-08 on January 1, 2023 and the adoption of the guidance did not have a significant impact on its condensed consolidated financial statements and disclosures.
NOTE 3 – INTANGIBLE ASSETS
Definite-Lived Intangible Asset
The definite-lived intangible asset is a customer relationship asset also acquired through the Advangelists, LLC acquisition. The customer relationship intangible asset is being amortized over its estimated useful life of five years. The Company periodically evaluates the reasonableness of the useful lives of these assets. These assets are also reviewed for impairment or obsolescence when events or circumstances indicate that the carrying amount may not be recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
| Useful Lives | March 31, 2023 | December 31, 2022 | ||||||||
| Customer relationship | $ | $ | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||||
| Net carrying value | $ | $ | ||||||||
During each of the three months ended March 31,
2023 and 2022, the Company recognized $
Future amortization of the customer relationship asset, for years ending December 31, is as follows:
| 2023 | $ | |||
| 2024 | ||||
| Total | $ | |||
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NOTE 4 – DEBT
Following is a summary of debt outstanding at March 31, 2023 and December 31, 2022:
| March 31, 2023 | December 31, 2022 | |||||||
| Small Business Administration Loan (a) | $ | $ | ||||||
| Note payable (b) | ||||||||
| Total debt | ||||||||
| Less: unamortized debt discounts | ( | ) | ||||||
| Current portion of debt, net of debt discounts | ||||||||
| Long-term portion of debt | $ | $ | ||||||
| (a) | In June 2020, the Company received an Economic Injury Disaster Loan of $ |
| (b) |
On December 30, 2022, the Company and Walleye
Opportunities Master Fund Ltd, a Cayman Islands company (the “Investor”), entered into a Securities Purchase Agreement (the
“Agreement”) for the Investor to purchase from the Company (i) a senior secured 20% original issue discount (OID) nine-month
promissory note in an aggregate gross principal amount of $
In conjunction with the Agreement, the Company
issued shares of common stock, or approximately 5.3% of the Company’s outstanding shares, to the Investor as an incentive
on the transaction (Incentive Shares). Excluding the above referenced Investor Warrant, the shares of Common Stock exercisable pursuant
to such Investor Warrant are not being considered beneficially owned by the Investor until the Investor Warrant is exercisable within
60 days. Total issuance fees of $
The Investor Note will only become convertible into common stock upon the occurrence of an Event of Default under and as defined in the Investor Note on terms set forth in the Investor Note. This Investor Note matures and is payable on or before September 30, 2023, and it provides that the Investor may demand prepayment after March 31, 2023 and before the maturity date, provided that the purchasers of securities in a future public offering by the Company, as defined in the Agreement, who hold the purchased Company securities at the time the prepayment demand, unanimously consent to the prepayment. The Company granted a security interest in all of its assets to the Investor as collateral for its obligations under the Investor Note pursuant to a Security Agreement. In addition, the Company’s subsidiaries guaranteed the obligations of the Company under the Investor Note pursuant to a Subsidiary Guarantee and granted a first lien security interest in all of their assets to the Investor as additional collateral pursuant to the Security Agreement. All securities sold in the above-described transaction contain certain piggy-back registration rights after the completion of our February 2023 offering (see Note 5). |
| 17 |
The aforementioned Investor Warrant was deemed
to be an equity-classified derivative instrument with a fair value of $
NOTE 5 – STOCKHOLDERS’ EQUITY
The Company’s authorized capital stock consists of 105,000,000 shares, comprised of shares of common stock, par value $, and 5,000,000 shares of preferred stock, $0.0001 par value.
Of the 5,000,000 shares of preferred stock authorized, the Board of Directors has designated the following:
| · | shares as Series AA Preferred Stock, outstanding | |
| · | shares as Series AAA Preferred Stock, shares outstanding | |
| · | shares as Series AAAA Preferred Stock, all previously outstanding shares of which have been redeemed or converted | |
| · | shares as Series C Preferred Stock, outstanding | |
| · | shares as Series B Preferred Stock, all previously outstanding shares of which have been redeemed or converted | |
| · | shares as Series E Preferred Stock, shares outstanding |
Rights Under Preferred Stock
The Company’s classes of preferred stock include the following provisions:
Optional Conversion Rights
| · | Series AA preferred stock – one share convertible into shares of common stock | |
| · | Series AAA preferred stock – one share convertible into shares of common stock | |
| · | Series C preferred stock – one share convertible into shares of commons stock | |
| · | Series E preferred stock – one share at a rate of Stated Value, as defined, divided by $ |
Redemption Rights
Series E preferred stock is redeemable at any time upon 30 days written notice by the Company and the holders, at a rate of 100% of the Stated Value, as defined.
Warrant Coverage
Series C preferred stock carries 100% warrant
coverage upon preferred stock conversion, warrants exercisable through September 20, 2023 at an exercise price of $
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February 2023 Public Offering
On February 13, 2023, the Company entered into
an underwriting agreement (the Underwriting Agreement) with Spartan Capital Securities, LLC (the Underwriter) relating to a public offering
of shares of common stock and pre-funded warrants to purchase shares of common stock (the Shares), for net proceeds
of $
Each pre-funded warrant is exercisable at any
time, until fully exercised, to purchase one share of common stock at an exercise price of $
Pursuant to the terms of the Underwriter agreement,
and as partial consideration to the Underwriter, the Company issued a warrant for the purchase of
Between the closing of the February 2023 Offering
and March 31, 2023, one or more investors holding pre-funded warrants converted their pre-funded warrants into
Subsequent to March 31, 2023, the remaining 1,250,216 shares of pre-funded warrants were exercised, resulting in the issuance of 1,250,216 shares of common stock in April 2023. Also, subsequent to March 31, 2023, an additional 8,870,969 shares of the Series 2023 Warrants were exercised under the alternative cashless exercise provision, resulting in the issuance of shares of common stock in April 2023.
Shares Issued for Services
During the quarter ended March 31, 2022, the Company
issued shares of common stock, at $1.69 per share for $
Shares issued upon conversion of debt:
During the quarter ended March 31, 2022, Dr. Gene
Salkind, his wife, and a trust converted an aggregate of $
The Company also converted $
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Stock Options
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 5,000 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 10,000 shares. During Fiscal 2009, the Company established a plan of long-term stock-based compensation incentives for selected Eligible Participants of the Company covering 10,000 shares. This plan was adopted by the Board of Directors and approved by stockholders in October 2009 (the “2009 Plan”). In September 2013, the Company’s stockholders approved an increase in the number of shares covered by the 2009 Plan to 25,000 shares. In the first quarter of 2016, the Board approved, and stockholders ratified a 2016 Employee Benefit and Consulting Services Compensation Plan covering 25,000 shares (the “2016 Plan”) and approved moving all options which exceeded the 2009 Plan limits to the 2016 Plan. In December 2018, the Board of Directors adopted and in February 2019 the stockholders ratified the 2018 Employee Benefit and Consulting Services Compensation Plan covering 75,000 shares (the “2018 Plan”). On April 2, 2019, the Board approved the “2019 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 150,000 shares. The 2019 Plan required stockholder approval by April 2, 2020, to be able to grant incentive stock options under the 2019 Plan. On October 13, 2021, the Board approved the “2021 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 1,100,000 post-split shares. The 2021 Plan required stockholder approval by October 13, 2022, to be able to grant incentive stock options under the 2021 Plan. The 2005 Plan, 2009 Plan, 2016 Plan, 2018 Plan, 2019 Plan and 2021 Plan are collectively referred to as the “Plans.”
In March of 2022, Anne S. Provost was elected to the board of directors and was granted options from the Company’s 2021 Plan with immediate vesting, at an exercise price of $, and expiration of December 2031.
In April of 2022, Dean Julia was granted options from the Company’s 2021 Plan with immediate vesting, at an exercise price of $, and expiration of April 2031.
In March of 2023, Nate Knight was granted options from the Company’s 2021 Plan with immediate vesting, at an exercise price of $, and expiration of March 2028.
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. The weighted average assumptions made in calculating the fair values of options granted during the quarters ended March 31, 2023, and 2022 are as follows:
| Quarter Ended March 31 | ||||
| 2023 | 2022 | |||
| Expected volatility | % | % | ||
| Expected dividend yield | ||||
| Risk-free interest rate | % | % | ||
| Expected term (in years) | ||||
| Share | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2023 | $ | $ | ||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | – | |||||||||||||||
| Cancelled & expired | ( | ) | – | |||||||||||||
| Outstanding, March 31, 2023 | $ | $ | ||||||||||||||
| Options exercisable, March 31, 2023 | $ | $ | ||||||||||||||
The weighted-average grant-date fair value of options granted during the three months ended March 31, 2023 was $.
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The aggregate intrinsic value of options outstanding and options exercisable on March 31, 2023, 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 lower than the $ closing price of the Company's common stock on March 31, 2023. Stock-based compensation expense was $ and $ for the quarters ended March 31, 2023 and 2022, respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.
As of March 31, 2023, the unamortized compensation cost related to unvested stock option awards is $ and is expected to be recognized during the remainder of fiscal 2023.
Warrants
During the three months ended March 31, 2023, the Company issued a total of common stock warrants, of which were issued in connection with the 20% OID Promissory note (see Note 4). The warrants issued in connection with the 20% OID Promissory note are exercisable commencing July 1, 2023 through December 30, 2027. An additional were issued in connection with the public offering of February 2023, including of pre-funded warrants (see Note 5) with a five-year contractual term, expiring .
The weighted average assumptions made in calculating the fair value of warrants granted during the three months ended March 31, 2023, and 2022 are as follows:
Quarters Ended March 31, | ||||
| 2023 | 2022 | |||
| Expected volatility | % | % | ||
| Expected dividend yield | ||||
| Risk-free interest rate | % | % | ||
| Expected term (in years) | ||||
| Share | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2023 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised* | ( | ) | $ | – | $ | |||||||||||
| Outstanding, March 31, 2023 | $ | $ | ||||||||||||||
| Warrants exercisable, March 31, 2023 | $ | $ | ||||||||||||||
| * |
| 21 |
Pursuant to ASC 260, Earnings Per Share, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the periods presented.
Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon conversion would be anti-dilutive.
The following potentially dilutive equity securities outstanding as of March 31, 2023, and December 31, 2022, are as follows:
| March 31, 2023 | December 31, 2022 | |||||||
| Convertible notes payable and accrued interest | ||||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Total common stock equivalents | ||||||||
NOTE 8 – LITIGATION
The Company may be involved in lawsuits in the normal course of business. Management cannot predict the outcome of the lawsuits or estimate the amount of any loss that may result. Accordingly, no provision for any contingent liabilities that may result has been made in the financial statements. Management believes that losses resulting from these matters, if any, would not have a material adverse effect on the financial position or results of operations of the Company. See further discussion at Note 10.
NOTE 9 –NASDAQ LISTING REQUIREMENTS
Our common stock and 2021 Warrants are listed on the NasdaqCM. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards.
On January 13, 2023, we received a letter from The Nasdaq Stock Market stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price of the Company’s common stock was below $1.00 per share for 30 consecutive business days. Pursuant to Nasdaq’s Listing Rules, the Company has a 180-day grace period, until July 12, 2023, during which the Company may regain compliance if the bid price of its common stock closes at $1.00 per share or more for a minimum of ten consecutive business days.
If we do not regain compliance with the bid price requirement, we may be eligible for an additional 180-calendar day compliance period so long as we satisfy the criteria for initial listing on the NasdaqCM and the continued listing requirement for market value of publicly held shares and we provide written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. A reverse stock split requires the approval of our shareholders, and we cannot assure that we will receive the requisite shareholder vote to allow us to effectuate a stock split. In the event we are not eligible for the second grace period, the Nasdaq staff will provide written notice that our Common Stock is subject to delisting; however, we may request a hearing before the Nasdaq Hearings Panel, which request, if timely made, would stay any further suspension or delisting action by the Nasdaq pending the conclusion of the hearing process and expiration of any extension that may be granted by the Hearings Panel.
| 22 |
On January 4, 2023, we received a deficiency notification from the Listing Qualifications Department of The NasdaqCM notifying the Company of its noncompliance with the NasdaqCM Listing Rule 5620(a) to hold an annual meeting of shareholders within no later than one year after the end of the Company’s fiscal year end. Under NasdaqCM Rules the Company now has 45 calendar days to submit a plan to regain compliance and can grant up to 180 calendar days from the fiscal year end, or until June 29, 2023, to regain compliance.
On December 14, 2022, we received a deficiency letter from the Listing Qualifications Department of The NasdaqCM notifying the Company of its noncompliance with the NasdaqCM Listing Rule 5550(b)(1) for the NasdaqCM, which requires that a listed company’s stockholders’ equity be at least $2.5 million. In accordance with NasdaqCM rules, the Company has 45 calendar days from the date of the notification to submit a plan to regain compliance with NasdaqCM Listing Rule 5550(b)(1). The Company intends to submit a compliance plan within 45 days of the date of the notification and will evaluate available options to resolve the deficiency and regain compliance. If the Company’s compliance plan is accepted, the Company may be granted up to 180 calendar days from December 14, 2022, to evidence compliance.
In order to maintain the listing of its common stock on The NasdaqCM, the Company must demonstrate compliance with Listing Rule 5550(b)(1) which requires the Company to maintain: (1) Stockholders’ equity of at least $2.5 million; or (2) Market Value of Listed Securities of at least $35 million. The Company’s plan of compliance outlined a plan for compliance with the stockholders’ equity standard requirement by completing the recently completed February 2023 Offering. (see Note 5). As the net proceeds of the recently completed offering was approximately $3,207,500, which is lower than the amount anticipated, the Company will likely need to raise additional capital and to amend its plan of compliance.
The Company intends to regain compliance with each of the applicable continued listing requirements of The NasdaqCM prior to the end of the compliance periods set forth in the Hearings Panel decision. However, until Nasdaq has reached a final determination that the Company has regained compliance with all of the applicable continued listing requirements, there can be no assurances regarding the continued listing of the Company’s common stock and 2021 Warrants on Nasdaq. If our common stock and 2021 Warrants cease to be listed for trading on the NasdaqCM, we would expect that our Common Stock and 2021 Warrants would be traded on one of the three tiered marketplaces of the OTC Markets Group. If Nasdaq were to delist our common stock and 2021 Warrants, it would be more difficult for our stockholders to dispose of our common stock or 2021 Warrants and more difficult to obtain accurate price quotations on our common stock or 2021 Warrants. The delisting of the Company’s common stock and 2021 Warrants from Nasdaq would have a material adverse effect on the Company’s access to capital markets, and any limitation on market liquidity or reduction in the price of its common stock as a result of that delisting would adversely affect the Company’s ability to raise capital on terms acceptable to the Company, if at all.
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NOTE 10 – SUBSEQUENT EVENTS
In April 2023, the Compensation Committee of the Company’s Board of Directors approved the following transactions:
Equity Transactions
| · | Grant of 100,000 shares of restricted common stock to Gene Salkind, Chairman of the Board, for services previously rendered, based on a per share value of $0.167. Such shares are restricted from transfer until February 13, 2024. | |
| · | Grant of 50,000 shares of restricted common stock each to the Company’s CEO and another member of the Board of Directors for services as directors of the Company. Such shares are restricted from transfer until February 13, 2024. | |
| · | Grant of 30,000 shares of common stock to Mr. Salkind as payment for accrued and unpaid interest of approximately $5,000 based on a per share value of $0.167. | |
| · | Grant of 71,856 shares of restricted common stock to the Company’s legal counsel as payment for accrued and unpaid services valued at $12,000 and $0.167 per share. Such shares are restricted from transfer until February 13, 2024. | |
| · | Issuance of 1,562,133 shares of restricted common stock at a per share value of $0.17 as payment and full settlement of outstanding accounts payable with a total carrying amount of $265,563. | |
| · | Grant of 25,000 stock options to a member of the Board of Directors in April 2023 with a term of five years and exercise price of $0.22 per share. |
The effects on the Company’s consolidated financial statements included an increase in stockholders’ equity of $282,573.
Subsequent to March 31, 2023, the remaining 1,250,216 shares of pre-funded warrants were exercised, resulting in the issuance of 1,250,216 shares of common stock in April 2023. Also, subsequent to March 31, 2023, an additional 8,870,969 shares of the Series 2023 Warrants were exercised under the alternative cashless exercise provision, resulting in the issuance of 4,435,485 shares of common stock in April 2023.
Litigation
Michael Trepeta, a former Co-CEO and director of the Company, filed a lawsuit against the Company and its subsidiary, Mobiquity Networks in April 2023 in the New York State Supreme Court, Nassau County. The claims stem from a Separation Agreement and Release that Mr. Trepeta and the Company entered into six years ago in April 2017 which terminated Mr. Trepeta’s employment agreement and discontinued his employment and directorship with the Company, among other things, by mutual agreement. Mr. Trepeta also gave the Company a release in the Separation Agreement and Release. Mr. Trepeta has claimed that the Company fraudulently induced him to enter into the Separation Agreement and Release; that the Company breached Mr. Trepeta’s employment agreement; and that the Company breached its covenant of good faith and fair dealing and its fiduciary duty. Mr. Trepeta is claiming not less than $2.5 Million in damages. Based on the Company’s initial internal review of the situation, the Company believes the claims lack merit and it intends to vigorously defend same. Due to uncertainties inherent in litigation, the Company cannot predict the outcome of this matter at this time.
| 24 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company.
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, 2022 which includes our audited financial statements for the year ended December 31, 2022 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 statement contains forward-looking statements within the meaning of the Securities Act. Discussions containing such forward-looking statements may be found throughout this statement. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the matters set forth in this statement. The accompanying condensed consolidated financial statements as of March 31, 2023, and 2022 includes the accounts of Mobiquity Technologies, Inc. (the “Company”) and its wholly owned subsidiaries.
This Quarterly Report includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain risk factors discussed in our Annual Report on Form 10-K (filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023.
Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Our Company
We are a next-generation advertising technology, data compliance and intelligence company which operates through our three proprietary software platforms in the programmatic advertising industry.
The Programmatic Advertising Industry
Programmatic advertising refers to the automated buying and selling of digital ad space. In contrast to manual advertising, which relies on human interaction and negotiation between publishers and marketers, programmatic ad buying harnesses technology to purchase digital display space. This use of software and algorithms helps streamline ad buying processes, which is why programmatic has become one of the most indispensable digital marketing tools worldwide. According to Statista, in 2021, global programmatic ad spends reached an estimated 418.4 billion U.S. dollars, with spending set to surpass 493 billion by 2022. The United States remains the leading programmatic advertising market worldwide.
Our Mission
Our mission is to help enterprises in the programmatic industry become more efficient and effective regarding the monetization of advertising, audience segments and data compliance. We do this by offering three proprietary solutions: Our ATOS platform for brands and agencies, our data intelligence platform for audience segments and targeting, and our publisher platform for privacy compliance and publisher monetization.
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Our Opportunity
Due to the recent changes to Privacy Laws, such as GDPR and CCPA, along with Apple and Google’s removal of Identifiers, we believe Publishers are facing two significant issues: increasing costs due to privacy compliance laws and decreasing revenue, due to the lack of audience targeting. We believe there is a major paradigm shift occurring in the market, where user data and the targeting intelligence to use it must shift from middlemen directly to the content publishers. Publishers must own their first party data and manage their audiences’ segments in-house. We believe that irrespective of whether a publisher chooses to work with us or not, they need to find a solution that allows advertisers to buy directly from them.
Our Solutions
Programmatic Advertising Platform
Our advertising technology operating system (or ATOS) platform is a single-vendor end-to-end solution that blends artificial intelligence (or AI) and machine learning (or ML)-based optimization technology that automatically serves advertising and manages digital advertising campaigns. Our ATOS platform engages with approximately 10 billion advertisement opportunities per day.
As an automated programmatic ecosystem, ATOS increases speed and performance, by providing dynamic technology that scales in real-time. It is this proprietary cloud-based architecture that keeps costs down and allows us to pass along savings to our customers. Also, by offering more of the features inherent in a digital advertising campaign, and removing the need for third-party integration of those features, we believe that our ATOS platform can be substantially more time efficient and cost efficient than other Demand-Side Platforms (or DSPs). Our ATOS platform also decreases the effective cost basis for users by integrating all the necessary capabilities at no additional cost as compared to the costs to outsource these capabilities to one or more providers in a fragmented ecosystem. DSP and bidding technologies, AdCop™ Fraud Protection, rich media and ad serving, attribution, reporting dashboard and DMP are all included in our ATOS platform.
Data Intelligence Platform
Our data intelligence platform provides precise data and insights on consumer’s real-world behavior and trends for use in marketing and research. Our management believes, based our experience in the industry, that we provide one of the most accurate and scaled solution for data collection and analysis, utilizing multiple internally developed proprietary technologies.
We provide our data intelligence platform to our customers on a managed services basis, and also offer a self-service alternative through our MobiExchange product, which is a software-as-a-service (or SaaS) fee model. MobiExchange is a data-focused technology solution that enables users to rapidly build actionable data and insights for its own use. MobiExchange’s easy-to-use, self-service tools allow anyone to reduce the complex technical and financial barriers typically associated with turning offline data, and other business data, into actionable digital products and services. MobiExchange provides out-of-the box private labeling, flexible branding, content management, user management, user communications, subscriptions, payment, invoices, reporting, gateways to third party platforms, and help desk, among other things.
Publisher Platform for Monetization and Compliance
Our content publisher platform is a single-vendor ad tech operating system that allows publishers to better monetize their opt-in user data and advertising inventory. The platform includes tools for: consent management, audience building, a direct advertising interface and inventory enhancement. Our publisher platform provides content publishers the functionality to use its user identifier data to create inventories of profiled data segments and to target audiences with advertising using that data, in a data privacy compliant manner.
Our Revenue Sources
We target publishers, brands, advertising agencies and other advertising technology companies as our audience for our three platform products. Our sales and marketing strategy is focused on providing a de-fragmented operating system that facilitates a considerably more efficient and effective way for advertisers and publishers to transact with each other. Our goal is to become the programmatic display advertising industry standard for small and medium sized advertisers. We generate revenue from our platforms through two verticals:
| · | The first is licensing one or more of our platforms as a white-label product for use by advertising agencies, demand-side platforms (or DSP’s), brands and publishers. Under the white-label scenario, the user licenses a platform from us and is responsible for running its own business operations and is billed a percentage of amounts spent on advertising run through the platform. | |
| · | The second revenue stream is a managed services model, in which, the user is billed a higher percentage of revenue run through a platform, but all services are managed by us. |
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Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated 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. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risks and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
Fair Value of Financial Instruments
The Company accounts for financial instruments at fair value, which as is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. There are three levels of inputs that may be used to measure fair value:
| · | Level 1—Valuation based on unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access; | |
| · | Level 2—Valuation based on observable quoted prices for similar assets and liabilities in active markets; and | |
| · | Level 3—Valuation based on unobservable inputs that are supported by little or no market activity, which require management’s best estimate of what market participants would use as fair value. |
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management.
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include accounts receivable, accounts payable and accrued expenses, and contract liabilities. On March 31, 2023 and December 31, 2022, the carrying amounts of these financial instruments approximated their fair values due to the short-term nature of these instruments, or they are receivable or payable on demand. The fair value of the Company’s debt approximates its carrying value based on current financing rates available to the Company and its short-term nature.
The Company does not have any other financial or non-financial assets or liabilities that would be characterized as Level 1, Level 2, or Level 3 instruments.
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Accounts Receivable
Accounts receivable represent customer obligations under normal trade terms and are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.
Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for doubtful accounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
Bad debt expense (recovery) is recorded as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations.
Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 Impairment or Disposal of Long-Lived Assets. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets and compares this to the carrying amounts of the assets.
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) to align revenue recognition more closely with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:
Identify the contract with a customer.
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identify the performance obligations in the contract.
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
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Determine the transaction price.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of March 31, 2023, and December 31, 2022 contained a significant financing component.
Allocate the transaction price to performance obligations in the contract.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation.
Recognize revenue when or as the Company satisfies a performance obligation.
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
Each of the Company’s customer contracts is deemed to have a single performance obligation. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days.
Stock-Based Compensation
The Company accounts for our stock-based compensation under ASC 718 Compensation – Stock Compensation using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the requisite service period, which is generally the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the Black-Scholes model for measuring the fair value of options and other equity instruments granted to both employees and non-employees.
When determining fair value of stock-based compensation, the Company considers the following assumptions incorporated into the Black-Scholes model:
| · | Exercise price, | |
| · | Expected dividends, | |
| · | Expected volatility, | |
| · | Risk-free interest rate; and | |
| · | Expected life of option |
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Recent Issued Accounting Pronouncements
We consider the applicability and impact of all new accounting pronouncements on our consolidated financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the Financial Accounting Standards Board (FASB) through the date these condensed consolidated financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective, that when adopted, will have a material impact on the condensed consolidated financial statements of the Company.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: On September 30, 2022, the FASB issued ASU 2022-03 (ASU 2022-03), which clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security. The ASU also requires specific disclosures related to such an equity security, including (1) the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions, and (3) any circumstances that could cause a lapse in the restrictions. ASU 2022-03 clarifies that a “contractual restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value (i.e., the entity should not apply a discount related to the contractual sale restriction, as stated in ASC 820-10-35-36B as amended by the ASU). The ASU also prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. For public business entities, ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of ASU 2022-03 on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
Financial Instrument – Credit Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. In May 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt ASU No. 2019-05 in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date of ASU 2016-13. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2023 and the adoption of the guidance did not have a significant impact on its condensed consolidated financial statements and disclosures.
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). Under ASU 2021-08, an acquirer in a business combination must apply ASC 606 principles when recognizing and measuring acquired contract assets and contract liabilities. The provisions of ASU 2021-08 are applicable for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company adopted ASU 2021-08 on January 1, 2023 and the adoption of the guidance did not have a significant impact on its condensed consolidated financial statements and disclosures.
Plan of Operation
Mobiquity intends to hire several new sales and sales support individuals to help generate additional revenue using the Advangelists platform and the Mobiquity Networks MobiExchange. Mobiquity’s sales team will focus on Advertising Agencies, Brands, and publishers to help increase both supply and demand across the Advangelists platform while providing unique data segments utilizing MobiExchange. Together the Advangelists platform and MobiExchange platform creates multiple revenue streams for Mobiquity. The first is licensing the Advangelists platform as a white-label product for use by Advertising Agencies, DSP’s, Publishers, and Brands. Under the White-Label scenario, the user licenses the technology and is responsible for running its own business operations and is billed a percentage of volume run through the platform. The second revenue stream is a managed services model in which the user is billed a higher percentage of revenue run through the platform, but all services are managed by the Mobiquity/Advangelists team. The third revenue model is a seat model, where the user is billed a percentage of revenue run through the platform and business operations are shared between the user and the Mobiquity/Advangelists team. Additional revenue can be generated by offering data segments and digital audiences through MobiExchange for use in omnichannel marketing programs that include but not limited to programmatic advertising email marketing and SMS. The goal of the sales team is to inform potential users of the benefits in efficiency and effectiveness of utilizing the end-to-end, fully integrated ATOS created by Advangelists and Mobiquity Networks.
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Results of Operations
Quarter Ended March 31, 2023, versus Quarter Ended March 31, 2022
The following table sets forth certain selected condensed statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance.
| Quarter Ended | ||||||||
| March 31,2023 | March 31, 2022 | |||||||
| Revenues | $ | 132,224 | $ | 542,169 | ||||
| Cost of revenues | 62,808 | 306,127 | ||||||
| Gross profit | 69,416 | 236,042 | ||||||
| General and administrative expenses | 1,425,747 | 2,077,724 | ||||||
| Loss from operations | $ | (1,356,331 | ) | $ | (1,841,682 | ) | ||
We generated revenues of $132,224 in the first quarter of 2023 compared to $542,169 in the same period for 2022, a decrease in revenues of $409,945. The nationwide economic impact of COVID-19 during the past twenty-four months severely reduced operations. The Company has developed several new features which we believe will help grow revenue in 2023 and beyond. We anticipate releasing one or more new products and services in early 2023 that will address many of the changes that have affected the AdTech industry over the last year.
Cost of revenues was $62,808 or 47.5% of revenues in the first quarter of 2023 as compared to $306,127 or 56.4% of revenues in the same fiscal period of 2022. Costs of revenues include audience building, targeting features and web services for storage of our data and web engineers who are building and maintaining our platforms. Our ability to capture and store data for sales does not translate to increased cost of sales.
Gross profit was $69,416 or 52.5% of revenues for the first quarter of 2023 as compared to $236,042 in the same period of 2022 or 43.6% of revenues.
General and administrative expenses were $1,425,747 for the first quarter of fiscal 2023 compared to $2,077,724 in the comparable period of the prior year, a decrease of $651,977. Decreased operating costs primarily related to a decrease in stock-based compensation expense of approximately $19,950, computer expense of approximately $370,088, capitalization of $501,075 in software development costs, offset by an increase in professional fees of approximately $285,000.
The loss from operations for the first quarter of 2023 was $1,356,331 as compared to $1,841,682 for the comparable period of the prior year. While our loss from operations decreased by approximately $485,000 due to capitalization of software development costs as well as improved operations over the comparable first quarter of 2022, the continuing operating loss is attributable to the focused effort in creating the products and services required to move forward with our business.
Liquidity and Capital Resources
We have a history of operating losses, and our management has concluded that factors raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the fiscal years ended December 31, 2022, and 2021.
The Company had cash of $2,182,330 on March 31, 2023. Cash used in operating activities for the three months ended March 31, 2023, was $1,606,449. This resulted primarily from a net loss of $1,716,804 offset by stock-based compensation of $12,304, amortization of intangibles $150,184, amortization of debt discount of $360,993, decrease in accounts receivable of $162,607 decrease in accounts payable and accrued expenses of $639,421, decrease in contract liabilities of $5,682, increase in provision of doubtful accounts of $19,843, and decrease in prepaid expenses and other assets of $47,500. Cash flows used in investing activities were primarily related to increased software development costs of $501,075. Cash flows provided by financing activities of $4,069,000 resulted from cash paid on debt of $150,000 offset by net proceeds received from the issuance of long-term debt of $1,011,500 and net proceeds of $3,207,500 from the issuance of common stock and pre-funded warrants.
The 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 satisfied. Since 1999, we have relied on equity financing and borrowings from outside investors to supplement our cash flow from operations and expect this to continue in 2023 and beyond until cash flow from our proximity marketing operations becomes substantial.
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Other Debt Transactions
In June 2020, the Company received an Economic Injury Disaster Loan of $150,000 from the Small Business Administration (SBA) which carries a thirty-year term, and interest at 3.7% per annum, with a maturity date in July of 2050. The loan is to be repaid in monthly installments, including principal and interest, of $731, beginning twelve months from the date of the loan. Total accrued and unpaid interest on the debt was $13,594 at December 31, 2022 and is included in accounts payable and accrued expenses on the accompanying consolidated balance sheet. The total principal outstanding has been presented as long-term liabilities as payments required to be made in 2023 will be applied to accrued interest. On January 5, 2023, the Company paid $163,885 to the Small Business Administration to pay off principal and accrued interest on the Company’s SBA loan.
On December 30, 2022, the Company and Walleye Opportunities Master Fund Ltd, a Cayman Islands company (the “Investor”), entered into a Securities Purchase Agreement (the “Agreement”) for the Investor to purchase from the Company (i) a senior secured 20% original issue discount (OID) nine-month promissory note in an aggregate gross principal amount of $1,437,500, less the 20% OID of $287,500, for a net subscription amount of $1,150,000 (the “Investor Note”), and (ii) a five year warrant to purchase 2,613,636 shares of the Company’s common stock at an exercise price of $0.44 per share, exercisable commencing July 1, 2023 and expiring December 30, 2027 (the “Investor Warrant”). Proceeds from the Agreement were received by the Company in January 2023.
In conjunction with the Agreement, the Company issued 522,727 shares of common stock, or approximately 5.3% of the Company’s outstanding shares, to the Investor as an incentive on the transaction (Incentive Shares). Excluding the above referenced Investor Warrant, the shares of Common Stock exercisable pursuant to such Investor Warrant are not being considered beneficially owned by the Investor until the Investor Warrant is exercisable within 60 days. Total issuance fees of $138,500 associated with the closing of the Agreement were paid by the Company to Spartan Capital Securities LLC and the Investor’s counsel. Approximately $163,000 of the loan proceeds were utilized to repay the outstanding principal and accrued interest under the SBA loan.
The Investor Note will only become convertible into common stock upon the occurrence of an Event of Default under and as defined in the Investor Note on terms set forth in the Investor Note. This Investor Note matures and is payable on or before September 30, 2023, and it provides that the Investor may demand prepayment after March 31, 2023 and before the maturity date, provided that the purchasers of securities in a future public offering by the Company, as defined in the Agreement, who hold the purchased Company securities at the time the prepayment demand, is made unanimously consent to the prepayment. The Company granted a security interest in all of its assets to the Investor as collateral for its obligations under the Investor Note pursuant to a Security Agreement. In addition, the Company’s subsidiaries guaranteed the obligations of the Company under the Investor Note pursuant to a Subsidiary Guarantee and granted a first lien security interest in all of their assets to the Investor as additional collateral pursuant to the Security Agreement. All securities sold in the above-described transaction contain certain piggy-back registration rights after the completion of our February 2023 offering (see Note 5).
The aforementioned Investor Warrant was deemed to be an equity-classified derivative instrument with a fair value of $1,526,363 at the date of closing on the Agreement, incorporating the use of the Black-Scholes valuation model, and the Incentive Shares were deemed to have a fair value of $318,863 based on the closing market price of the Company’s common stock on the day preceding the closing of the Agreement. Per accounting guidance under ASC 815, the Company recorded the fair values of the Investor Warrant and Incentive Shares based on the relative fair value allocation method, which allocates fair values as a percentage of total fair value of the debt, Investor Warrant, and Incentive Shares, in proportion to the net proceeds received under the Investor Note of $1,150,000. As a result of applying the relative fair value allocation method, the Investor Warrant was assigned a relative fair value of $586,040 and the Incentive Shares were assigned a relative fair value of $122,426, at the date of closing on the Agreement. The fair values of the Investor Warrant, the Incentive Shares, the OID, and the $138,500 in debt issuance costs paid, were recorded as debt discounts totaling $1,134,466, and are presented net against the debt principal outstanding on the accompanying condensed consolidated balance sheet at March 31, 2023. Amortization associated with the total debt discounts is being recognized using the effective interest method over the term of the Investor Note, which matures on September 30, 2023. For the quarter ended March 31, 2023, $360,993 in amortization on the debt discounts was recognized as interest expense on the accompanying condensed consolidated statement of operations, and remaining unamortized debt discounts at March 31, 2023 were $773,473.
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February 2023 Public Offering
On February 13, 2023, the Company entered into an underwriting agreement (the Underwriting Agreement) with Spartan Capital Securities, LLC (the Underwriter) relating to a public offering of 3,777,634 shares of common stock and pre-funded warrants to purchase 4,286,883 shares of common stock (the Shares), for net proceeds of $3,207,500 (the February 2023 Offering). In conjunction with the February 2023 Offering, which closed on February 16, 2023, the investors also received other Warrants to purchase 12,096,776 shares of common stock (Series 2023 Warrants). The offered Shares were priced at $0.465 per combination of one share of common stock or one pre-funded warrant, accompanied by one Series 2023 Warrant.
Each pre-funded warrant is exercisable at any time, until fully exercised, to purchase one share of common stock at an exercise price of $0.0001 per share. Each Series 2023 Warrant is exercisable for five years to purchase 1.5 shares of common stock at a cash exercise price of $0.465 per warrant share. The Series 2023 Warrants contain an alternative cashless exercise provision permitting the holder to acquire 0.75 shares of common stock for every 1.5 warrant shares any time after the earlier of (i) 30 days following the initial exercise date of February 14, 2023 and (ii) the date on which the aggregate trading volume of the Company’s common stock, beginning on the initial exercise date of the Series 2023 Warrants, exceeds 36,290,322 shares. Additionally, the exercise price of both the pre-funded warrants and the Series 2023 Warrants are subject to customary adjustments for stock splits, stock dividends, reclassifications and the like.
Pursuant to the terms of the Underwriter agreement, and as partial consideration to the Underwriter, the Company issued a warrant for the purchase of 403,226 shares of common stock, exercisable from February 14, 2023 through February 14, 2028, at an initial exercise price of $0.5115 per share. The Company also granted the Underwriter a 45-day option to purchase up to an additional 1,209,678 shares and/or pre-funded warrants in lieu of shares, and accompanying Series 2023 Warrants to purchase 1,814,517 shares at the public offering price less the underwriting discounts and commissions, to cover over-allotments, if any. No additional shares or pre-funded warrants were purchased by the Underwriter. The Company paid a cash fee to the Underwriter equal to 8% of the gross proceeds raised in the February 2023 Offering, plus a reimbursement of Underwriter fees totaling $242,500.
Between the closing of the February 2023 Offering and March 31, 2023, one or more investors holding pre-funded warrants converted their pre-funded warrants into 3,036,667 shares of common stock and elected the alternative cashless exercise provision for the exercise of 806,451 shares of the Series 2023 Warrants, resulting in the issuance of 403,226 shares of common stock. Pre-funded warrants and Series 2023 Warrants remaining outstanding and exercisable at March 31, 2023 were 1,250,216 and 11,290,325, respectively.
Subsequent to March 31, 2023, the remaining 1,250,216 shares of pre-funded warrants were exercised, resulting in the issuance of 1,250,216 shares of common stock in April 2023. Also, subsequent to March 31, 2023, an additional 8,870,969 shares of the Series 2023 Warrants were exercised under the alternative cashless exercise provision, resulting in the issuance of 4,435,485 shares of common stock in April 2023.
Off-Balance Sheet Arrangements
As of March 31, 2023, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the disclosure controls and procedures as of December 31, 2022, and quarterly since that date. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2023, due primarily to the Company’s lack of segregation of duties in the finance and accounting department similar to other companies our size.
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.
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There were changes in the Company's internal control over financial reporting during the most recently completed fiscal year, which includes the integration of the new staff, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
We performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Continuing Internal Controls Remediation Efforts
During fiscal 2022 the Company had identified control gaps and deficiencies. The Company has worked to remediate the gaps, deficiencies and material weaknesses in its internal controls. The Board of Directors and The Audit Committee, as a priority, initiated these remediation activities to ensure the Company has proper internal controls over financial reporting and corporate governance. These steps will continue in fiscal 2023. To demonstrate these controls are effective, the Company has instituted independent monitoring and testing of these aforementioned controls.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Michael Trepeta, a former Co-CEO and director of the Company, filed a lawsuit against the Company and its subsidiary, Mobiquity Networks in April 2023 in the New York State Supreme Court, Nassau County. The claims stem from a Separation Agreement and Release that Mr. Trepeta and the Company entered into six years ago in April 2017 which terminated Mr. Trepeta’s employment agreement and discontinued his employment and directorship with the Company, among other things, by mutual agreement. Mr. Trepeta also gave the Company a release in the Separation Agreement and Release. Mr. Trepeta has claimed that the Company fraudulently induced him to enter into the Separation Agreement and Release; that the Company breached Mr. Trepeta’s employment agreement; and that the Company breached its covenant of good faith and fair dealing and its fiduciary duty. Mr. Trepeta is claiming not less than $2.5 Million in damages. Based on the Company’s initial internal review of the situation, the Company believes the claims lack merit and it intends to vigorously defend same. Due to uncertainties inherent in litigation, the Company cannot predict the outcome of this matter at this time.
ITEM 1A. RISK FACTORS
Incorporated by reference are the risk factors contained in our Form 10-K for the fiscal year ended December 31, 2022.
ITEM 2. CHANGES IN SECURITIES.
(a) For fiscal 2022, 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 | |||||
| 2022 | Common Stock | 50,000 shares | Services rendered | Rule 506, Section 4(2) | Not applicable | |||||
| 2022 | Common Stock | 1,878,440 shares 888,166 warrants | Note conversion of $2,412,500 of Secured debt and $150,000 of unsecured debt | Section 3(a)(9) | Secured debt converted at $1.25 and $1.50 per share and unsecured debt converted at $2.00 and $4.00 per share (1)(2) | |||||
| 2022 | Common Stock | 922,448 shares | $1,187,500 raised, no commissions paid | Rule 506, Section 4(2) | Not applicable |
| (1) | The secured investor converted $2,502,500 of principal into 1,368,333 common shares and warrants to purchase 684,166 shares of common stock at an exercise price of $4.00 per share through September 2029. |
| (2) | The secured investor converted $510,000 of principal into 408,000 common shares and warrants to purchase 204,000 shares of common stock at an exercise price of $4.00 per share through September 2029. |
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On December 30, 2022, the Company and Walleye Opportunities Master Fund Ltd, a Cayman Islands company (the Investor), entered into a Securities Purchase Agreement (the Agreement), which closed on January 4, 2023, for the Investor to purchase from the Company (i) a senior secured 20% OID nine-month promissory note in an aggregate original principal amount of $1,437,500 (the Investor Note), and (ii) a five year warrant to purchase 2,613,636 shares of the Company’s common stock at an exercise price of $0.44 per share which is not exercisable until July 1, 2023 (the Investor Warrant). A total of 522,727 shares of Common Stock, or approximately 7.5% of the Company’s outstanding shares of Common Stock (post-issuance), were issued to the Investor as an incentive on the transaction, excluding the above referenced Investor Warrant, the shares of Common Stock exercisable pursuant to such Investor Warrant not being considered beneficially owned by the Investor until the Investor Warrant is exercisable within 60 days. A fee of $103,500 plus warrants to purchase 26,136 shares of Common Stock, exercisable at $0.484 per share, were issued to Spartan Capital Securities LLC. These warrants were subsequently cancelled on February 7, 2023. Approximately $163,000 of the loan proceeds were utilized to retire a small business loan originally in the principal amount of $150,000. The Investor Note will only become convertible into Common Stock upon the occurrence of an Event of Default under and as defined in the Investor Note on terms set forth in the Investor Note. This Note matures and is payable on or before September 30, 2023, and it provides that the investor may demand prepayment after March 31, 2023 and before the maturity date, provided that the purchasers of securities in the offering covered by this prospectus who hold the purchased Company securities at the time the prepayment demand is made unanimously consent to the prepayment. We expect we will rely on proceeds from future fundings or cashflow from operations to repay the Note on the maturity date or earlier at our option, or if the investor demands prepayment which is consented to. If we are unable to raise additional funding after the recently completed offering or do not generate sufficient cashflow to repay the Note when due, we will be in default under the Note if we do not pay it. The Company granted a security interest in all of its assets to the Investor as collateral for its obligations under the Investor Note pursuant to a Security Agreement. In addition, the Company’s subsidiaries guaranteed the obligations of the Company under the Investor Note pursuant to a Subsidiary Guarantee and granted a first lien security interest in all of their assets to the Investor as additional collateral pursuant to the Security Agreement. All securities sold in the above described transaction contain certain piggy-back registration rights after the completion of our February 2023 offering. We have completed various other financings as described under the Notes to Consolidated Financial Statements. Exemption from registration is claimed under Section 4(2) of the Securities Act of 1933, as amended.
b) From January 1, 2023, through March 31,2023, 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. – March 2022 | Common Stock | 50,000 shares | Services rendered | Rule 506, Section 4(2) | Not applicable | |||||
| Jan. – March 2022 | Common Stock | 1,443,333 shares 684,166 warrants | Note conversion of $2,502,500 of Secured debt and $150,000 of unsecured debt | Section 3(a)(9) | Secured debt converted at $1.50 per share and unsecured debt converted at $2.00 per share (1) | |||||
| Jan – March 2023 | Common Stock | 3,777,634 shares 12,351,400 warrants | Shares sold for cash | Rule506;Section 4(2) | Not applicable | |||||
| Jan – March 2023 | Common Stock | 522,727 shares | Original issue discount | Rule506;Section 4(2) | Not applicable | |||||
| Jan – March 2023 | Common Stock | 3,439,893 shares | Warrant conversion | Section 3(a)(9) | Each warrant exercise price $0.465 |
_________________
| (1) | The secured investor converted $2,502,500 of principal into 1,368,333 common shares and warrants to purchase 684,166 shares of common stock at an exercise price of $4.00 per share through September 2029. |
| (2) | The secured investor converted $510,000 of principal into 408,000 common shares and warrants to purchase 204,000 shares of common stock at an exercise price of $4.00 per share through September 2029. |
In the three months ended March 31, 2023 and, 2022, there were no repurchases by the Company of its Common Stock.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS
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______________
| * | Filed herewith |
| ** | Previously filed under Form S-1 Registration Statement, File No. 333-260364. |
| *** | Previously filed |
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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: May 15, 2023 | By: | /s/ Dean L. Julia |
| Dean L. Julia, | ||
| Principal Executive Officer | ||
| Date: May 15, 2023 | By: | /s/ Sean McDonnell |
| Sean McDonnell, | ||
| Principal Financial Officer | ||
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