NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2016 AND 2015
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS – On September
10, 2013, Mobiquity Technologies, Inc. changed its name from Ace Marketing & Promotions, Inc. “the Company” or
“Mobiquity”). We operate through two wholly-owned U.S. subsidiaries, namely, Mobiquity Networks, Inc. and Ace Marketing
& Promotions, Inc. Mobiquity Networks owns 100% of Mobiquity Wireless S.L.U, a company incorporated in Spain. This corporation
had an office in Spain to support our U.S. operations, which office was closed in the fourth quarter of 2016.
We operate a national location-based mobile
advertising network that has developed a consumer-focused proximity network which we believe is unlike any other in the United
States. Our integrated suite of proprietary location based mobile advertising technologies allows clients to execute more personalized
and contextually relevant experiences, driving brand awareness and incremental revenue.
Mobiquity Technologies, Inc., a New York
corporation (OTCQB: MOBQ). Through its wholly-owned subsidiary, Mobiquity Networks, Inc. has evolved and grown from a mobile advertising
technology company focused on Driving Awareness and Foot-traffic throughout its indoor mall-based beacon network, into a next generation
mobile location data and marketing company. The Company provides precise unique, at-scale location based data and insights on consumer’s
real world behavior and trends for use in marketing and research. With our combined exclusive data sets of shopping malls, premium
outlets and cinemas beacon data, and first party location data via our advanced Software Development Kit (SDK) utilizing multiple
geo-location technologies; Mobiquity Networks provides one of the most accurate and scaled solution for mobile data collection
and analysis. This should create several additional revenue streams, including, but not limited to; Push Notification Campaigns,
Re-targeting Campaigns,
Data Provision,
Audience Profiles, Attribution Reporting and
Custom Research.
Ace Marketing is our legacy marketing and
promotions business which provides integrated marketing services to our commercial customers. While Ace Marketing currently represents
substantially all of our revenue, we anticipate that activity from Ace Marketing will represent a diminishing portion of corporate
revenue as our attention is now principally focused on developing and executing on opportunities in our Mobiquity Networks business.
GOING CONCERN - The accompanying consolidated
financial statements have been prepared assuming the Company will continue as a going concern. The Company's continued existence
is dependent upon the Company's ability to obtain additional debt and/or equity financing to advance its new technology revenue
stream. The Company has incurred losses for the years ending December 31, 2016 and December 31, 2015 of $10,710,503 and $10,459,724,
respectively. As of December 31, 2016, the Company has an accumulated deficit of $51,182,093. The Company has had negative cash
flows from operating activities of $5,929,852 and $9,369,631 for the years ending December 31, 2016 and 2015, respectively. These
factors raise substantial doubt about the ability of the Company to continue as a going concern.
Management has plans to address the Company’s
financial situation as follows:
In the near term, management plans to continue
to focus on raising the funds necessary to implement the Company’s business plan related to the Bluetooth-enabled iBeacon
compatible technology. Management will continue to 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. The possibility of failure in obtaining additional
funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going
concern.
In the long term, management believes that
the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to
finance the Company’s future growth. However, there can be no assurances that the Company’s efforts to raise equity
and debt at acceptable terms or that the planned activities will be successful, or that the Company will ultimately attain profitability.
The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current
commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability
and cash flows from operations to sustain its operations.
PRINCIPLES OF CONSOLIDATION - The accompanying
consolidated financial statements include the accounts of Mobiquity Technologies, Inc., formerly known as Ace Marketing & Promotions,
Inc., and its wholly owned subsidiaries, Mobiquity Networks, Inc., Ace Marketing, Inc., (which has had its name changed to Ace
Marketing & Promotions, Inc. and Mobiquity Wireless S.L.U.). All intercompany accounts and transactions have been eliminated
in consolidation.
ESTIMATES - The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Effective
January 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”),
for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value
to be applied to existing generally accepted accounting principles that require the use of fair value measurements, and establishes
a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not
have an impact on the Company’s financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data
|
Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
Cash and cash equivalents include money
market securities that are considered to be highly liquid and easily tradable as of December 31, 2016 and 2015. These securities
are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within
our fair value hierarchy.
The carrying amounts of financial instruments,
including accounts receivable, accounts payable and accrued liabilities, and promissory note, approximated fair value as of December
31, 2016 and 2015, because of the relatively short-term maturity of these instruments and their market interest rates. No instruments
are carried at fair value.
The Company accounts for its derivative liabilities, at
fair value, on a recurring basis under level 2.
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair value of derivatives
|
|
|
$
|
–
|
|
|
$
|
350,700
|
|
|
$
|
–
|
|
|
$
|
350,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded Conversion Features
The Company evaluates embedded conversion
features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion
feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value
recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated
under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its’ financial instruments,
including stock purchase warrants and options, to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as
charges or credits to income.
CASH AND CASH EQUIVALENTS - The Company
considers all highly liquid debt instruments with a maturity of three months or less, as well as bank money market accounts, to
be cash equivalents. As of December 31, 2016 and 2015, the balances are $213,184 and $2,044,662, respectively.
CONCENTRATION OF CREDIT RISK - Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and
cash and cash equivalents.
Concentration of credit risk with respect
to trade receivables is generally diversified due to the large number of entities comprising the Company’s customer base
and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial
strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited.
The Company places its temporary cash investments
with high credit quality financial institutions. At times, the Company maintains bank account balances, which exceed FDIC limits.
As of December 31, 2016 and 2015, the Company exceeded FDIC limits by $0 and $1,644,032, respectively.
REVENUE RECOGNITION – The Company
recognizes revenue, for all revenue streams, when it is realized or realizable and estimable in accordance with ASC 605, “
Revenue
Recognition
”. The Company will recognize revenue only when all of the following criteria have been met:
|
·
|
Persuasive evidence for an agreement exists;
|
|
·
|
Service has been provided or shipment has occurred;
|
|
·
|
The fee is fixed or determinable; and,
|
|
·
|
Collection is reasonably assured.
|
ACE MARKETING – Ace Marketing’s
revenue is recognized when title and risk of loss transfers to the customer and the earnings process is complete. In general, title
passes to our customers upon the company’s shipment of the merchandise. Revenue is recognized on a gross basis since Ace
Marketing has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk. Advance
payments made by customers are included in customer deposits. Ace Marketing records all shipping and handling fees billed to customers
as revenues and related costs as cost of goods sold, when incurred. Additional source of revenue, derived from emails/texts directly
to consumers are recognized under contractual arrangements. Revenue from this advertising method is recognized at the time of service
provided.
MOBIQUITY NETWORKS – Revenue is
recognized with the billing of an advertising contract or data sale. The customer signs a contract directly with us for an advertising
campaign with mutually agreed upon term and is billed on the start date of the advertising campaign, which are normally in short
duration periods. The second type of revenue is through the licensing of our data. Revenue from data can occur in two ways; the
first is a direct feed, which is billed at the end of each month. The second way is through the purchasing of audience segments.
When an audience segment is purchased, we bill the buyer upon delivery, which is usually 1-2 days for the order date.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - Management
must make estimates of the collectability of accounts receivable. Management specifically analyzes accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment
terms when evaluating the adequacy of the allowance for doubtful accounts. As of December 31, 2016 and 2015, allowance for doubtful
accounts were $104,611 and $104,611, respectively.
INVENTORY – Inventory is recorded
at cost (First In, First Out) and is comprised of finished goods. The Company maintains an inventory on hand for its largest customer’s
frequent order items. All items held are branded for the customer, therefore are not available for public distribution. The Company
has an agreement with this customer, for cost recovery, if vendor relationship is terminated. There have been minimal reserves
placed on inventory, based on this arrangement. As of December 31, 2016 and 2015, the Company has reserved against $31,676 and
$31,676, respectively.
PROPERTY AND EQUIPMENT - Property and equipment
are stated at cost. Depreciation is expensed using the straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are being amortized using the straight-line method over the estimated useful lives of the related assets
or the remaining term of the lease. The costs of additions and improvements, which substantially extend the useful life of a particular
asset, are capitalized. Repair and maintenance costs are charged to expense. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the account and the gain or loss on disposition is reflected in operating
income.
LONG LIVED ASSETS - Long-lived assets such
as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that
the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on
the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets,
if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its
undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the
asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted
at a rate commensurate with the risk associated with the recovery of the assets. The Company recognized $223,487 impairment
losses for the period ended December 31, 2016.
PATENTS and TRADEMARKS - Patents and trademarks
developed during the prior years were capitalized for the period of development and testing. Expenditures during the planning stage
and after implementation have been expensed in accordance with ASC985.
ADVERTISING COSTS - Advertising costs are
expensed as incurred. For the years ended December 31, 2016 and 2015, there were advertising costs of $6,341 and $14,495, respectively.
ACCOUNTING FOR STOCK BASED COMPENSATION.
Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite
service period. The Company uses the Black-Sholes option-pricing model to determine fair value of the awards, which involves certain
subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options
before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the
expected term (“volatility”) and the number of options for which vesting requirements will not be completed (“forfeitures”).
Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount
recognized on the consolidated statements of operations. Refer to Note 8 “Stock Option Plans” in the Notes
to Consolidated Financial Statements in this report for a more detailed discussion.
BENEFICIAL CONVERSION FEATURES - Debt instruments
that contain a beneficial conversion feature are recorded as deemed interest to the holders of the convertible debt instruments.
The beneficial conversion is calculated as the difference between the fair values of the underlying common stock less the proceeds
that have been received for the debt instrument limited to the value received.
FOREIGN CURRENCY TRANSLATIONS - The Company’s
functional and reporting currency is the U.S. dollar. We own a subsidiary in Europe. Our subsidiary’s functional currency
is the EURO. All transactions initiated in EUROs are translated into U.S. dollars in accordance with ASC 830-30,
“Translation
of Financial Statements,”
as follows:
|
(i)
|
Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.
|
|
(ii)
|
Fixed assets and equity transactions at historical rates.
|
|
(iii)
|
Revenue and expense items at the average rate of exchange prevailing during the period.
|
Adjustments arising from such translations
are deferred until realization and are included as a separate component of stockholders’ equity as a component of comprehensive
income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive
income.
No significant realized exchange gains
or losses were recorded since March 7, 2013 (date of acquisition of subsidiary) to December 31, 2016.
INCOME TAXES - Deferred income taxes are
recognized for temporary differences between financial statement and income tax basis of assets and liabilities for which income
tax or tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets,
if it is more likely than not, that all or some portion of such deferred tax assets will not be realized. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
NET LOSS PER SHARE - Basic net loss per
share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon
exercise of stock options. The number of common shares potentially issuable upon the exercise of certain options and warrants that
were excluded from the diluted loss per common share calculation was approximately 51,912,242 and 28,424,266 because they are anti-dilutive,
as a result of a net loss for the years ended December 31, 2016 and 2015, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations
thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the
new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles
will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability
of any standard is subject to the formal review of our financial management and certain standards are under consideration.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment, net, consist of
the following at December 31:
|
|
USEFUL LIVES
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Furniture and Fixtures
|
|
3 or 5 years
|
|
$
|
362,930
|
|
|
$
|
1,094,601
|
|
Leasehold Improvements
|
|
5 years
|
|
|
4,084
|
|
|
|
4,084
|
|
|
|
|
|
|
367,014
|
|
|
|
1,098,685
|
|
Less Accumulated Depreciation
|
|
|
|
|
351,622
|
|
|
|
995,330
|
|
|
|
|
|
$
|
15,392
|
|
|
$
|
103,355
|
|
Depreciation expense for the years ended
December 31, 2016 and 2015 was $130,634 and $164,346, respectively. The company disposed of approximately $736,100 of outdated
fixed assets resulting in a loss on disposal of $17,526. The company performed an impairment assessment in accordance with ASC
360-10-35-17, and determined that an impairment loss of $223,487 of the capitalized costs for internal use software exists as of
December 31, 2016.
NOTE 3: INTANGIBLE ASSETS
Intangible assets, net, consist of the
following at December 31:
|
|
USEFUL LIVES
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Acquisition of intellectual property (FuturLink)
|
|
5 years
|
|
|
98,000
|
|
|
|
98,000
|
|
Website technology development (Venn/AcePlace)
|
|
5 years
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
|
|
|
143,000
|
|
|
|
143,000
|
|
Less Accumulated Amortization
|
|
|
|
|
105,883
|
|
|
|
77,283
|
|
|
|
|
|
$
|
37,117
|
|
|
$
|
65,717
|
|
Future amortization, for the years ending
December 31, is as follows:
2017
|
|
|
27,157
|
|
2018
|
|
|
9,960
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
37,117
|
|
Amortization expense for the years ended
December 31, 2016 and 2015 was $28,600 and $28,609, respectively.
Acquisition of Assets of FuturLink
On March 7, 2013, the Company acquired
the assets of FuturLink at a cost of approximately $98,000, which cash was paid from the Company’s working capital. These
assets include, without limitation, the FuturLink technology (patents and source codes), trademark(s) and access point (proximity
marketing) component parts. At the time of acquisition, FuturLink’s assets were minimal; the purchase price was apportioned
to the intellectual property received in exchange. The Company changed its name to Mobiquity Networks upon acquisition and is a
consolidated component of these financial statements.
NOTE 4: CONVERTIBLE DEBT AND DERIVATIVE
LIABILITIES
Summary of Convertible Promissory Notes:
|
|
2016
|
|
|
2015
|
|
Arnost Note
|
|
$
|
322,000
|
|
|
$
|
322,000
|
|
Cavu Notes, net of $8,379 for 2016 and $28,227 for 2015 debt discounts
|
|
|
241,621
|
|
|
|
221,773
|
|
Berg Notes (a)
|
|
|
3,722,000
|
|
|
|
3,722,000
|
|
Investor Notes, net of discounts
|
|
|
6,546,654
|
|
|
|
1,582,194
|
|
Total Debt
|
|
|
10,832,275
|
|
|
|
5,847,967
|
|
Current portion of debt
|
|
|
10,832,275
|
|
|
|
4,276,194
|
|
Long-term portion of debt
|
|
$
|
-
|
|
|
$
|
1,571,773
|
|
|
(a)
|
Between August and December
2015, the Company borrowed $3,675,000 from accredited investors. These loans are due and payable the earlier of December 31, 2016
or the completion of an equity financing of at least $2,500,000. Upon the sale of the unsecured promissory notes, the Company
issued $1 of principal, one share of common stock and a warrant to purchase one share of common stock at an exercise price of
$0.40 per share through August 31, 2017. Accordingly, an aggregate of 3,675,000 shares of common stock and warrants to purchase
a like amount were issued in the last six months of 2015. Each noteholder has the right to convert the principal of their note
and accrued interest thereon at a conversion price of $0.30 per share or at the noteholder’s option, into equity securities
of the Company on the same terms as the last equity transaction completed by the Company prior to each respective conversion date.
|
The Company has financial
instruments that are considered derivatives or contain embedded features subject to derivative accounting related to 22 convertible
notes issued totaling $3,675,000 which included a ratchet provision in the conversion price of $0.30 or a price equal to the last
equity transaction completed by the Company as part of a subscription agreement. The notes all have a maturity date of December
31, 2016. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the
Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their
estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded
derivatives for convertible debentures and associated warrants using a multinomial lattice model as of December 31, 2016. The fair
values of these derivative instruments are measured each quarter, which resulted in a gain of $352,132. As of December 31, 2016,
the fair market value of these derivatives aggregated $224,425, using the following assumptions: estimated 0.3 year term, estimated
volatility of 313%, and a discount rate of 0.51%.
In April 2016 through
the filing date of this Form 10-K, the Company issued and sold 12% unsecured promissory notes in the principal amount of $1,025,000,
convertible at $0.20 per common share. Upon conversion, the note holders would receive 100% warrant coverage, exercisable at $0.20
per common share over a period of five years with cashless exercise provisions. These notes automatically convert in the event
at least $5 million is raised in an equity financing. Prior to the mandatory conversion date, note holders have the option to convert
the principal and accrued interest also on the same terms as the mandatory conversion and the Company has the option to prepay.
The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $1,507,450 and initial derivative
expense of $565,780. As of December 31, 2016, the fair market value of these derivatives aggregated $126,275, using the following
assumptions: estimated 0.3 year term, estimated volatility of 279%, and a discount rate of 0.51%.
The Company raised
$700,000 in the third quarter of 2016 from the sale of secured promissory notes in the principal amount of $700,000 from six accredited
investors. Each Note was scheduled to be repaid on October 31, 2016, extended to December 15, 2016 but payment was not made. In
lieu of interest on the Note, 4,900,000 restricted shares of common stock were issued to the Note Holders. At the option of the
Note Holder, each Note shall be convertible at the lower of $.20 per common share or into securities on the same terms of the next
completed equity offering of at least $10 million in gross proceeds. In the event the Note is converted into common stock, 100%
warrant conversion shall be provided to the Note Holder for each share of common stock issued upon conversion. These warrants will
have a term of three years and shall be exercisable at $.20 per common share. Prior to this offering, Thomas Arnost, Executive
Chairman, has a secured interest in the amount of $322,000 in the assets of the Company and its subsidiaries. Mr. Arnost has agreed
that the investors in this offering will have a pari passu first secured interest with Mr. Arnost in all assets of the Company
and its subsidiaries. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $11,071.
As of December 31, 2016, the fair market value of these derivatives aggregated $42,945, using the following assumptions: estimated
volatility of 279.0%, and a discount rate of 0.51%.
A recap of the derivative instruments is as follows:
Derivative Liability 2016
|
Beginning balance
|
|
$
|
(576,557
|
)
|
New Issuances
|
|
|
(1,079,016
|
)
|
Gain, net
|
|
|
1,304,873
|
|
Conversions
|
|
|
–
|
|
Ending balance
|
|
$
|
(350,700
|
)
|
NOTE 5: FAIR VALUE MEASUREMENTS
Our financial assets and liabilities carried
at fair value measured on a recurring basis as of December 31, 2016 and 2015, consisted of the following:
|
|
Total fair
|
|
|
Quoted prices
|
|
Significant other
|
|
|
Significant
|
|
|
|
value at
|
|
|
in active
|
|
observable
|
|
|
unobservable
|
|
|
|
December 31,
|
|
|
markets
|
|
inputs
|
|
|
inputs
|
|
Description
|
|
2016
|
|
|
(Level)
|
|
(Level 2)
|
|
|
(Level)
|
|
Derivative liability (1)
|
|
$
|
350,700
|
|
$
|
–
|
|
$
|
350,700
|
|
|
$
|
–
|
|
|
|
Total fair
|
|
|
Quoted prices
|
|
Significant other
|
|
|
Significant
|
|
|
|
value at
|
|
|
in active
|
|
observable
|
|
|
unobservable
|
|
|
|
December 31,
|
|
|
markets
|
|
inputs
|
|
|
inputs
|
|
Description
|
|
2015
|
|
|
(Level)
|
|
(Level 2)
|
|
|
(Level)
|
|
Derivative liability (1)
|
|
$
|
576,557
|
|
$
|
–
|
|
$
|
576,557
|
|
|
$
|
–
|
|
|
(1)
|
The Company has estimated the fair value of these embedded derivatives for convertible
debenture using a multinomial lattice model.
|
NOTE 6: INCOME TAXES
The provision for income taxes for the
years ended December 31, 2016 and 2015 is summarized as follows:
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
$
|
–
|
|
|
|
–
|
|
|
State
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
–
|
|
|
|
–
|
|
|
State
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
$
|
–
|
|
|
$
|
–
|
|
The Company has federal and state net operating
loss carry forwards of approximately 50,653,000, which begin to expire 2025 and can be used to reduce future taxable income
through 2034. The Company is open for tax years for the years ended 2008 through present.
The tax effects of temporary differences
which give rise to deferred tax assets (liabilities) are summarized as follows:
|
|
YEARS ENDED DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net operating loss carry-forwards
|
|
$
|
(20,261,000
|
)
|
|
$
|
(15,977,000
|
)
|
Stock based compensation – options/warrants
|
|
|
3,540,000
|
|
|
|
3,267,000
|
|
Stock issued for services
|
|
|
971,000
|
|
|
|
971,000
|
|
Gain on derivative instrument
|
|
|
(1,011,000
|
)
|
|
|
(489,000
|
)
|
Disallowed entertainment expense
|
|
|
56,000
|
|
|
|
52,000
|
|
Charitable contribution limitation
|
|
|
11,000
|
|
|
|
11,000
|
|
Preferred Stock
|
|
|
39,000
|
|
|
|
39,000
|
|
Bad debt expense & reserves
|
|
|
47,000
|
|
|
|
47,000
|
|
Penalties
|
|
|
1,000
|
|
|
|
1,000
|
|
Loss on extinguishment of debt
|
|
|
114,000
|
|
|
|
129,000
|
|
Beneficial conversion features
|
|
|
119,000
|
|
|
|
119,000
|
|
Mobiquity-Spain – net loss
|
|
|
830,000
|
|
|
|
695,000
|
|
Impairment of long lived assets
|
|
|
89,000
|
|
|
|
0
|
|
Amortization of debt discount
|
|
|
1,311,000
|
|
|
|
246,000
|
|
Deferred Tax Assets
|
|
|
(14,144,000
|
)
|
|
|
(10,889,000
|
)
|
Less Valuation Allowance
|
|
|
14,144,000
|
|
|
|
10,889,000
|
|
Net Deferred Tax Asset
|
|
$
|
–
|
|
|
$
|
–
|
|
A reconciliation of the federal statutory
rate to the Company’s effective tax rate is as follows:
|
|
YEARS ENDED DECEMBER 31,
|
|
|
|
2016
|
|
|
2015
|
|
Federal Statutory Tax Rate
|
|
|
34.00%
|
|
|
|
34.00%
|
|
State Taxes, net of Federal benefit
|
|
|
6.00%
|
|
|
|
6.00%
|
|
Change in Valuation Allowance
|
|
|
(40.00%
|
)
|
|
|
(40.00%
|
)
|
Total Tax Expense
|
|
|
0.00%
|
|
|
|
0.00%
|
|
NOTE 7: STOCKHOLDERS’ EQUITY (DEFICIT)
During the quarter ended March 31, 2015,
the Company commenced a private placement offering at an offering price of $.30 per share with matching warrants issued to purchase
an additional share of common stock at $.45 per share through March 31, 2020. Three investors purchased an aggregate of 1,666,667
shares for proceeds of $500,000 from our private placement offering on March 30, 2015. The Company also issued 77,143 shares for
$27,000 of interest and 90,000 shares for $22,000 of services rendered during the quarter.
During the quarter ended June 30, 2015,
the Company issued 7,400,000 shares for proceeds of $2,220,000 under the private placement offering. We also issued 236,842 shares
for $59,000 of interest and 435,000 shares for $119,000 of services during the quarter.
During the quarter ended September 30,
2015, the Company issued 96,195 shares for $31,549 of interest and 135,000 shares for services during the quarter.
The private placement offering, which commenced
in March 2015 and was completed in May 2015, provided for certain anti-dilution protection in the event of sales of common stock
below $.30 per share. As a result of the note offering described in note 4, paragraph (d) to the table set forth therein, management
of the Company has determined to issue to the investors one share of common stock for every $1 invested for a total of 2,720,000
shares.
In December 2015, the Company sold
200,000 shares of its Series AA Preferred Stock at a purchase price of $10 per share and raised $2 million. The Series AA
Preferred Stock have no dividend, voting or liquidation preferences. These Series AA Preferred Stock shall be treated for
liquidation purposes, the same as a holder of common stock. In the first quarter of 2016, the Company sold 40,000 shares of
Series AA preferred stock and raised $400,000. Each share of Preferred Stock is convertible into 50 shares of Common Stock at
an effective conversion price of $.20 per share of Common Stock. The Preferred Stockholders had anti-dilution protection
rights through December 31, 2016.
Shares issued for services
During the year ended December 31, 2015,
the Company issued 835,00 shares of common stock, at $0.19 to $0.36 per share for $209,090 in exchange for services rendered.
During the quarter ended March 31,
2016, the Company issued 695,000 common shares, at $0.10 to $0.19 per share, valued at $97,800. During the June 30, 2016
quarter the Company issued 245,000 common shares, at $0.10 to $0.11 per share, valued at $24,950 in exchange for services
rendered. These shares were valued based on the trading price of the Company’s common stock on the date of
issuance.
Shares issued for accrued interest
During the year ended December 31, 2015, the Company issued
410,180 shares of common stock, at $0.18 to $0.50 per share for $119,776 in payment of interest for the year.
During the quarter
ended March 31, 2016, the Company issued 210,333 common shares, at $0.13 to $0.18 per share, valued at $35,215. During the June
30, 2016 quarter the Company issued 244,344 common shares, at $0.11 per share, valued at $27,000. During the September 30, 2016
quarter the Company issued 5,215,334 common shares, at $0.06 to $0.11 per share, valued at $387,082. During the December 31, 2016
quarter the Company issued 720,000 common shares, at .375 per share, valued at $27,000 in exchange for accrued interest.
During the quarter
entered December 31, 2016, the Company issued 1,000,000 common shares in satisfaction of back rent owed the landlord in the sum
of $57,157. The shares were valued at $20,000 and a gain on settlement of debt was recorded of $36,177.
During the quarter
ended December 31, 2016, the Company issued 11,908,335 common shares, at $0.05 per share, valued at $594,417 for the exercise of
outstanding warrants.
NOTE 8: OPTIONS AND WARRANTS
The Company’s results for the years
ended December 31, 2016 and 2015 include employee share-based compensation expense totaling $683,036 and $1,452,248, respectively.
Such amounts have been included in the Statements of Operations within selling, general and administrative expenses. No income
tax benefit has been recognized in the statement of operations for share-based compensation arrangements due to a history of operating
losses.
The following table summarizes stock-based
compensation expense for the years ended December 31, 2016 and 2015:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Employee stock based compensation-option grants
|
|
$
|
603,536
|
|
|
$
|
1,223,332
|
|
Employee stock based compensation-stock grants
|
|
|
–
|
|
|
|
–
|
|
Non-Employee stock based compensation-option grants
|
|
|
79,500
|
|
|
|
30,155
|
|
Non-Employee stock based compensation-stock grants
|
|
|
–
|
|
|
|
–
|
|
Non-Employee stock based compensation-stock warrant
|
|
|
–
|
|
|
|
198,761
|
|
|
|
$
|
683,036
|
|
|
$
|
1,452,248
|
|
NOTE 9: STOCK OPTION PLANS
During Fiscal 2005, the Company established,
and the stockholders approved, an Employee Benefit and Consulting Services Compensation Plan (the “2005 Plan”) for
the granting of up to 2,000,000 non-statutory and incentive stock options and stock awards to directors, officers, consultants
and key employees of the Company. On June 9, 2005, the Board of Directors amended the Plan to increase the number of stock options
and awards to be granted under the Plan to 4,000,000. During Fiscal 2009, the Company established a plan of long-term stock-based
compensation incentives for selected Eligible Participants of the Company covering 4,000,000 shares. This plan was adopted by the
Board of Directors and approved by stockholders in October 2009 and shall be known as the 2009 Employee Benefit and Consulting
Services Compensation Plan (the “2009 Plan”). In September 2013, the Company’s stockholders approved an increase
in the number of shares covered by the 2009 Plan to 10,000,000. In February 2015, the Board approved, subject to stockholder approval
within one year, an increase in the number of shares under the 2009 Plan to 20,000,000 shares; however, stockholder approval was
not obtained within the requisite one year and the anticipated increase in the 2009 Plan was canceled. In the first quarter of
2016, the Board approved and stockholders ratified a 2016 Employee Benefit and Consulting Services Compensation Plan covering 10,000,000
shares (the “2016 Plan”) and approving moving all options which exceeded the 2009 Plan limits to the 2016 Plan. The
2005, 2009 and 2016 plans are collectively referred to as the “Plans.”
All stock options under the Plans are granted
at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying
periods and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated
using the Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to
the
provisions of ASC 718 “Stock Compensation”, previously Revised SFAS No. 123 “Share-Based Payment” (“SFAS
123 (R)”). The fair values of these restricted stock awards are equal to the market value of the Company’s stock on
the date of grant, after taking into certain discounts. The expected volatility is based upon historical volatility of our stock
and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise
of options for all employees. Previously, such assumptions were determined based on historical data. The weighted average assumptions
made in calculating the fair values of options granted during the years ended December 31, 2016 and 2015 are as follows:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
135.6%
|
|
|
|
166.38%
|
|
Expected dividend yield
|
|
|
0
|
|
|
|
0
|
|
Risk-free interest rate
|
|
|
1.25%
|
|
|
|
1.76%
|
|
Expected term (in years)
|
|
|
5.00
|
|
|
|
6.62
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Share
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding, January 1, 2016
|
|
|
19,340,000
|
|
|
$
|
.39
|
|
|
|
7.97
|
|
|
|
2,500
|
|
Granted
|
|
|
1,000,000
|
|
|
$
|
.11
|
|
|
|
4.39
|
|
|
|
5,625
|
|
Exercised
|
|
|
(899,999
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Cancelled / Expired
|
|
|
(1,125,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
18,315,001
|
|
|
$
|
.41
|
|
|
|
5.18
|
|
|
|
5,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2016
|
|
|
16,600,417
|
|
|
$
|
.41
|
|
|
|
5.14
|
|
|
|
5,625
|
|
The weighted-average grant-date fair value
of options granted during the years ended December 31, 2016 and 2015 was $.08 and $.30, respectively. The aggregate intrinsic value
of options outstanding and options exercisable at December 31, 2016 is calculated as the difference between the exercise price
of the underlying options and the market price of the Company’s common stock for the shares that had exercise prices, that
were lower than the $.06 closing price of the Company’s common stock on December 31, 2016.
As of December 31, 2016, the fair value
of unamortized compensation cost related to unvested stock option awards was $485,936.
The option information provided above includes
options granted outside of the Plans, which total 4,615,000 as of December 31, 2016.
The weighted average assumptions made in calculating the
fair value of warrants granted during the years ended December 31, 2016 and 2015 are as follows:
|
|
Years Ended
|
|
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
0%
|
|
|
|
158.35%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
Risk-free interest rate
|
|
|
0%
|
|
|
|
0.30%
|
|
Expected term (in years)
|
|
|
–
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Share
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Outstanding, January 1, 2016
|
|
|
|
36,432,782
|
|
|
$
|
0.51
|
|
|
|
4.58
|
|
|
|
24,800
|
|
|
Granted
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
|
(11,008,336
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Cancelled/Expired
|
|
|
|
(4,171,712
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding, December 31, 2016
|
|
|
|
21,252,734
|
|
|
$
|
0.48
|
|
|
|
1.40
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable, December 31, 2016
|
|
|
|
21,252,734
|
|
|
$
|
0.48
|
|
|
|
1.40
|
|
|
|
–
|
|
NOTE 10: COMMITMENTS AND CONTINGENCIES
COMMITMENTS –
In April 2011, we entered into our agreement
with Simon Property Group, which agreement was amended first in September 2013 and then in July 2014. This second amendment provides
for us to expand our location-based mobile mall network footprint to about 195 current Simon malls across the United States. Our
agreement with Simon currently expires December 31, 2017. Simon is entitled to receive fees from us equal to the greater of a pre-set
per mall fee or a percentage of revenues derived from within the Simon Mall network. The revenue share agreement in which Simon
participates will exceed the minimum annual mall fees if the Company has generated revenues within the Simon network of about $15
million or more in a calendar year. Our agreement with Simon requires the company to maintain letters of credit for each calendar
year under the agreement represented by the minimum amount of fees due for such calendar year. For 2015, the minimum fees of $2.7
million has been secured through two bank letters of credit, one of which was issued in the amount of $1,350,000 utilizing the
funds of a non-affiliated stockholder and the second letter of credit was obtained in the same amount through the funds of Thomas
Arnost, our Executive Chairman. In the event Simon draws down upon either letter of credit, we have until the next minimum payment
due date (approximately 90 days) after the draw down to obtain replacement letters of credit. Each person who secured our letters
of credit has the opportunity to notify us that they wish to turn the cash funds securing the letters of credit over to us and
to convert such funds into Common Stock currently at a conversion price of $.20 per share. Also, each person who issued the letter
of credit is receiving quarterly, while the letters of credit are outstanding, options to purchase 125,000 shares of Common Stock,
exercisable at the prevailing market price per share on the date of grant and interest at the rate of 8% per annum on the monies
that they have had to set aside in their bank accounts and are unable to have access to such monies. In April, July and October,
2016, Simon drew down on each bank letter of credit for an aggregate of $837,880 owed to each letter of credit provider.
In April 2015, we entered into a license
agreement with Macerich. Pursuant to our agreement with Macerich, we have the right to install Mobi-Beacons to send information
across the air space of the common areas of our Macerich mall network in up to 55 malls, across the United States. Our right to
install our Mobi-Beacons to market and sell third party paid advertising in the interior common areas of these malls shall be exclusive.
In the fourth quarter of 2016, Macerich terminated this agreement.
Pursuant to a master agreement effective
August, 2015, we entered into an agreement with PREIT pursuant to which we have the right to install our Mobi-Beacons and to send
information across the air space of the common areas of our PREIT mall network, which will include approximately 27 malls in select
states in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior
common areas of these malls is exclusive. Under our agreement between us and PREIT, PREIT is entitled to an agreed upon revenue
share over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is not attained
for any measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days prior written
notice. PREIT may also terminate the agreement if it determines that Mobiquity’s installed equipment is not adequate and/or
provides a negative user experience for the visitors to the PREIT malls. The agreement also provides for PREIT to adjust the number
of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the malls.
In January 2016, we entered into a license
agreement with GGP, with an effective date of November 20, 2015. Pursuant to our agreement with GGP, we have the right to install
Mobi-Beacons to send information across the air space of the common areas of our GGP mall network in up to 120 malls across the
United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior common areas
of these malls is exclusive. In the fourth quarter of 2016, GGP terminated this agreement.
Pursuant to a master agreement entered
into in 2015, we entered into an agreement with Rouse pursuant to which we have the right to install our Mobi-Beacons to send information
across the air space of the common areas of our Rouse mall network, which will include approximately 30 malls in select states
in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior common
areas of these malls is exclusive. Under our agreement between us and Rouse, Rouse is entitled to an agreed upon revenue share
over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is not attained for any
measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days prior written notice.
Either party may also terminate the agreement due to a material breach which is not cured within 30 days of written notice. Also,
Rouse upon at least 60 days written notice to us prior to the end of the second contract year, may terminate the agreement with
respect to any participating property for any reason at the end of the second contract year. The agreement also provides for Rouse
to adjust the number of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the
malls.
In February 2012, the Company entered into
a lease agreement for new executive office space of approximately 4,200 square feet located at 600 Old Country Road, Suite 541,
Garden City, NY 11530. The lease agreement is for 63 months, commencing April 2012 and expiring June 2017. The annual rent under
this office facility for the first year is estimated at $127,000, including electricity, subject to an annual increase of 3%. In
the event of a default in which the Company is evicted from the office space, Mobiquity would be responsible to the landlord for
an additional payment of rent of $160,000 in the first year of the lease, an additional payment of $106,667 in the second year
of the lease and an additional payment of rent of $53,333 in the third year of the lease. Such additional rent would be payable
at the discretion of the Company in cash or in Common Stock of the Company.
Our lease for approximately
2,000 square feet of space at an annual cost of approximately $28,600 (inclusive of taxes) at 1105 Portion Road, Farmingville,
NY 11738 expired in November 2013. We currently lease this property on a month to month basis for approximately $2,500 per month
beginning December 2014, with a 5% increase in rent each month.
In March 2013, we entered
into a two-year lease for an approximately 1,200 square foot facility of office and warehouse space in Barcelona, Spain, at monthly
cost of approximately $2,200. This lease on a month-to-month basis. We have closed this facility and consolidated our efforts moving
our activities back to the United States.
In March of 2014, we
entered into a month-to-month lease agreement for approximately 400 square feet of office space located in Manhattan, NY at a monthly
cost of $3,700. In May of 2015 we moved to a larger location with the same landlord on a month to month basis for $4,700 each month.
Minimum future rentals under non-cancelable
lease commitments are as follows:
YEARS ENDING DECEMBER 31,
|
|
|
|
|
|
2017
|
|
|
|
2,467,968
|
|
|
2018
|
|
|
|
0
|
|
|
2019 and thereafter
|
|
|
|
0
|
|
|
|
|
|
$
|
2,467,968
|
|
Rent and real estate tax expense was approximately
$3,610,000 and $3,318,000 for the years December 31, 2016 and 2015, respectively.
EMPLOYMENT CONTRACTS –
Michael D. Trepeta and Dean L. Julia
On March 1, 2005, the Company entered into
employment contracts with two of its officers, namely, Dean L. Julia and Michael D. Trepeta. The employment agreements provide
for minimum annual salaries plus bonuses equal to 5% of pre-tax earnings (as defined) and other perquisites commonly found in such
agreements. In addition, pursuant to the employment contracts, the Company granted the officers options to purchase up to an aggregate
of 400,000 shares of common stock.
On August 22, 2007, the Company approved
a three-year extension of the employment contracts with two of its officers expiring on February 28, 2011. The employment agreements
provided for minimum annual salaries with scheduled increases per annum to occur on every anniversary date of the contract and
extension commencing on March 1, 2008. A signing bonus of options to purchase 150,000 shares granted to each executive were fully
vested at the date of the grant and exercisable at $1.20 per share through August 22, 2017. Ten year options to purchase 50,000
shares of common stock are to be granted at fair market value on each anniversary date of the contract and extension commencing
March 1, 2008. Termination pay of one year base salary based upon the scheduled annual salary of each executive officer for the
next contract year, plus the amount of bonuses paid (or entitle to be paid) to the executive for the current fiscal year of the
preceding fiscal year, whichever is higher.
On April 7, 2010, the Board of Directors
approved a five-year extension of the employment contract of Dean L. Julia and Michael D. Trepeta to expire on March 1, 2015. The
Board approved the continuation of each officer’s current salary and scheduled salary increases on March 1
st
of
each year. The Board also approved a signing bonus of stock options to purchase 200,000 shares granted to each officer which is
fully vested at the date of grant and exercisable at $.50 per share through April 7, 2020; ten-year stock options to purchase 100,000
shares of Common Stock to be granted to each officer at fair market value on each anniversary date of the contract and extension
thereof commencing March 1, 2011; and termination pay of one year base salary based upon the scheduled annual salary of each executive
officer for the next contract year plus the amount of bonuses paid or entitled to be paid to the executive for the current fiscal
year or the preceding fiscal year, whichever is higher. In the event of termination, the executives will continue to
receive all benefits included in the employment agreement through the scheduled expiration date of said employment agreement prior
to the acceleration of the termination date thereof.
In July 2012, the Company approved and
in January 2013 the Company implemented amending the employment agreements of Messrs. Julia and M. Trepeta to expire on February
28, 2017, subject to an automatic one year renewal on March 1, 2013 and on each March 1
st
thereafter, unless the Employment
Agreement is terminated in accordance with its terms on or before December 30
th
of the prior calendar year. In the event
of termination without cause, the executives will continue to receive all salary and benefits included in the employment agreement
through the scheduled expiration date of said employment agreement prior to the acceleration of the termination date thereof, plus
one year termination pay.
On May 28, 2013, the Company approved amending
the employment agreements of Messrs. Julia and Trepeta to provide that each officer may choose an annual bonus equal to 5% of pre-tax
earnings for the most recently completed year before deduction of annual bonuses paid to officers or, in the event majority control
of the Company is acquired by a person or a group of persons during the prior fiscal year, the officer may choose to receive the
aforementioned bonus or 1% of the control consideration paid by acquirer(s) to acquire majority control of the Company.
Thomas Arnost
In December 2014, we entered into a three-year
employment agreement with Thomas Arnost serving as Executive Chairman of the board. Mr. Arnost receives a monthly salary of
$10,000 plus an annual grant of options for serving on the board of directors. In the event of his termination, by Mr. Arnost or
by the company for cause, Mr. Arnost will receive his pay through the termination date. In the event that Mr. Arnost is terminated
without cause, he shall be entitled to receive his salary paid through the end of the term of his agreement. Mr. Arnost may terminate
the agreement at any time by giving three months’ prior written notice to our board of directors. Mr. Arnost will also be
entitled to indemnification against all claims, judgments, damages, liabilities, costs and expenses (including reasonably legal
fees) arising out of, based upon or related to his performance of services to us, to the maximum extent permitted by law.
Sean Trepeta
In December 2014, Mobiquity Networks entered
into an employment agreement with Sean Trepeta, to serve as President of Mobiquity Networks as an employee at will. Mr. Trepeta,
as a full-time employee, is to be paid a salary at the rate of $20,000 per month. Upon the execution of the agreement, he received
10-year options to purchase 1,500,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015,
he will be entitled to a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and
a further bonus of $125,000 for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12
million, it being understood that any revenues which do not have a 30% margin shall not count toward these totals. All options
granted to Mr. Trepeta will become immediately vested in the event of a change in control of our Company or sale of substantially
all of our assets. In the event we terminate Mr. Trepeta without cause, after six months of continued employment under the
employment agreement, Mr. Trepeta is entitled to receive three months’ severance pay.
Paul Bauersfeld
In December 2014, we entered into an employment
agreement with Paul Bauersfeld, our Chief Technology Officer, who is an employee at will. Mr. Bauersfeld, as a full-time employee,
is to be paid a salary at the rate of $25,000 per month. Upon the execution of the agreement, he received 10-year options to purchase
1,000,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015, he will be entitled to
a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and a further bonus of $125,000
for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12 million, it being understood
that any revenues which do not have a 30% margin shall not count toward these totals. The foregoing compensatory arrangements with
Mr. Bauersfeld is in addition to the non-statutory stock options to purchase 2,600,000 shares of our common stock previously granted
to Mr. Bauersfeld. All options granted to Mr. Bauersfeld will become immediately vested in the event of a change of control
of our company or sale of substantially all of our assets. In the event we terminate Mr. Bauersfeld without cause. Mr. Bauersfeld
is entitled to receive six months’ severance pay.
Sean McDonnell
Sean McDonnell, our Chief Financial Officer,
is an employee at will and is currently receiving a salary of $132,000 per annum.
TRANSACTIONS WITH MAJOR CUSTOMERS –
The Company sells its products to a geographically
diverse group of customers, performs ongoing credit evaluations of its customers and generally does not require collateral. During
the year ended December 31, 2016 a customer accounted for approximately 35% of net revenues and for the year ended December 31,
2015 a customer accounted for approximately 38% of net revenues. The Company holds on hand certain items that are ordered on a
regular basis.
NOTE 11: SEGMENT INFORMATION
Reportable operating segment is determined
based on Mobiquity Technologies, Inc.’s management approach. The management approach, as defined by accounting standards
which have been codified into FASB ASC 280, “Segment Reporting,” is based on the way that the chief operating decision-maker
organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance.
Our chief operating decision-maker is our Chief Executive Officer and Chief Financial Officer.
While our results of operations are primarily
reviewed on a consolidated basis, the chief operating decision-maker also manages the enterprise in two operating segments: (i)
Ace Marketing and Promotions, Inc. captures Branding & Branded Merchandise (ii) Mobiquity Networks represent our Mobil Marketing.
Corporate management defines and reviews
segment profitability based on the same allocation methodology as presented in the segment data tables below:
Fiscal 2016
|
|
Ace Marketing & Promotions, Inc.
|
|
|
Mobiquity Networks Inc.
|
|
|
Total
|
|
Net sales
|
|
$
|
2,202,591
|
|
|
$
|
65,932
|
|
|
$
|
2,268,523
|
|
Operating (loss), excluding depreciation
|
|
|
(575,492
|
)
|
|
|
(6,464,214
|
)
|
|
|
(7,039,706
|
)
|
Interest income
|
|
|
3
|
|
|
|
–
|
|
|
|
3
|
|
Interest (expense)
|
|
|
(4,463
|
)
|
|
|
(3,520,609
|
)
|
|
|
(3,525,072
|
)
|
Depreciation and amortization
|
|
|
(20,925
|
)
|
|
|
(138,922
|
)
|
|
|
(159,847
|
)
|
Comprehensive Loss
|
|
|
(600,877
|
)
|
|
|
(10,123,745
|
)
|
|
|
(10,724,622
|
)
|
Total assets at December 31, 2016
|
|
|
374,156
|
|
|
|
352,017
|
|
|
|
726,173
|
|
Fiscal 2015
|
|
Ace Marketing & Promotions, Inc.
|
|
|
Mobiquity Networks Inc.
|
|
|
Total
|
|
Net sales
|
|
$
|
2,491,875
|
|
|
|
–
|
|
|
$
|
2,491,875
|
|
Operating (loss), excluding depreciation
|
|
|
(1,831,241
|
)
|
|
|
(7,436,250
|
)
|
|
|
(9,267,491
|
)
|
Interest income
|
|
|
41
|
|
|
|
–
|
|
|
|
41
|
|
Interest (expense)
|
|
|
–
|
|
|
|
(996,011
|
)
|
|
|
(996,011
|
)
|
Depreciation and amortization
|
|
|
(48,014
|
)
|
|
|
(144,941
|
)
|
|
|
(192,955
|
)
|
Comprehensive Loss
|
|
|
(1,879,214
|
)
|
|
|
(8,577,202
|
)
|
|
|
(10,456,416
|
)
|
Total assets at December 31, 2015
|
|
|
3,038,728
|
|
|
|
292,442
|
|
|
|
3,331,170
|
|
All intersegment sales and expenses have
been eliminated from the tables above.
NOTE 12: COMMON STOCK PURCHASE AGREEMENT
On March 31, 2014, the Company entered
into a common stock purchase agreement (referred to herein as the “Purchase Agreement”), with Aspire Capital Fund,
LLC, an Illinois limited liability company (referred to herein as “Aspire Capital”), which provides that, upon the
terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate
of $15.0 million of Common Stock over the approximately 24-month term of the Purchase Agreement. In consideration for entering
into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, we issued to Aspire Capital 1,000,000 shares
of Common Stock as a commitment fee (referred to in herein as the “Commitment Shares”). Upon execution of the Purchase
Agreement, we sold to Aspire Capital 1,000,000 shares of Common Stock (referred to herein as the “Initial Purchase Shares”).
Concurrently with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital
(referred to herein as the “Registration Rights Agreement”), in which we agreed to file one or more registration statements
as permissible and necessary to register under the Securities Act of 1933, as amended, or the Securities Act, the sale of the shares
of Common Stock that have been and may be issued to Aspire Capital under the Purchase Agreement.
Pursuant to the Purchase Agreement and
the Registration Rights Agreement, the Company was obligated to register 15,000,000 shares of Common Stock under the Securities
Act, which includes the Commitment Shares and Initial Purchase Shares that have already been issued to Aspire Capital and an additional
13,000,000 shares of Common Stock which the Company may issue to Aspire Capital after the registration statement is declared effective
under the Securities Act. Said Registration Statement was declared effective by the SEC on April 28, 2014 and has since become
stale. The Purchase Agreement terminated on March 16, 2016.
NOTE 13: SUBSEQUENT EVENTS
There are no subsequent events required to be disclosed in the
Notes to Financial Statements through the date of the report, except as follows:
In February 2017, The Company debt holders converted $3,772,000
of notes being converted at 0.05 per share into 75,440,000 shares of common stock.
February 28, 2017, the Company entered
into an agreement with a two non-affiliated persons to provide $1.6 million of short term secured debt financing in three monthly
tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection
with this transaction, the Company agreed to issue an origination fee of 1,600,000 shares of restricted common stock. Alexander
Capital L.P. acted as Placement Agent and Advisor for this transaction.
In February 2017, the Company
reported that all of its Series AA preferred stock and substantially all of its outstanding debt both secured and unsecured
(approximately $12.1 million) have been converted into equity securities of the Company as outlined below. It should be noted
that the capital transactions below were based on a premium to the average closing sale price of $0.045 per share during the
60 day period prior to February 08, 2017. The Company had outstanding 1,118,538 shares of newly designated Series AAA
preferred stock and $1,350,000 of convertible notes. The convertible notes consist of $1,200,000 of secured notes and $150,000 of
unsecured notes. Of the 1,118,538 shares of Series AAA preferred stock outstanding, 240,000 Series AA preferred stock with
an original cost basis of $2.4 million were converted into Series AAA preferred stock. The remaining 878,538 shares of Series
AAA preferred stock were issued in exchange for the conversion of principal and accrued interest of approximately $8,7855,380
of unsecured debt. The terms of the Series AAA preferred stock can be summarized as follows:
The price of each preferred share may be
convertible into common stock with an equivalent purchase price of $.10 per common share. If the preferred shares are converted,
the subscriber will then receive 100% warrant coverage, with each warrant exercisable at $.05 per share with a cash payment to
the Company through the close of business on December 31, 2019. The preferred shares have no voting or other preferences except
as required by law other than the right of conversion described above and a liquidation preference equal to $.01 per share.
Thomas Arnost, our Executive Vice Chairman,
and another principal stockholder agreed to convert letters of credit in the principal amount of $2,700,000 and $322,000 of secured
debt into shares of common stock at the then marketing price of $.05 per share. Accrued interest on these obligations were either
previously converted into our common stock or were upon conversion of the principal, converted into common stock at the fair market
value of our common stock at each interest accrual date.
In April 2017, Michael Trepeta entered
into a separation agreement with the Company pursuant to which he resigned as an executive officer and director. There is currently
a vacancy in the Board of Directors of the Company. After his resignation, the Board changed Dean Julia’s title from Co-Chief
Executive Officer to Chief Executive Officer.
Pursuant to Michael Trepeta’s separation
agreement, Mr. Trepeta is entitled to the following benefits:
|
·
|
Six months’ coverage under the Company’s existing director/officer insurance policy;
|
|
·
|
Indemnification per existing employment agreement;
|
|
·
|
Expense reimbursement through May 31, 2017;
|
|
·
|
All options vested shall continue until their normal expiration date; and
|