MOBIQUITY
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TECHNOLOGIES, INC.
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Condensed Consolidated Balance Sheets
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March 31,
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December 31,
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2017
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2016
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Unaudited
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Audited
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Assets
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Current Assets:
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Cash and cash equivalents
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$
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921,828
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$
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213,184
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Accounts receivable, net
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218,001
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298,928
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Inventory, net
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85,236
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79,291
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Prepaid expenses and other current assets
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19,304
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38,929
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Total Current Assets
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1,244,369
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630,332
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Property and equipment, net
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9,121
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15,392
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Intangible assets, net
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29,967
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37,117
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Other assets
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36,876
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43,332
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Total Assets
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$
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1,320,333
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$
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726,173
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Liabilities and Stockholders' Deficit
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Current Liabilities:
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Accounts payable
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$
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738,775
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$
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914,697
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Accrued expenses
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547,128
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1,161,628
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Derivative liability
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1,797,007
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350,700
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Convertible promissory notes, net
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362,258
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10,832,275
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Total Current Liabilities
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3,445,168
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13,259,300
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Long-term portion of convertible promissory notes, net
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–
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–
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Total Liabilities
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3,445,168
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13,259,300
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AAA Preferred Stock, $.0001 par value; 5,000,000 shares authorized 1,122,588 and zero shares
issued and outstanding at March 31,2017 and December 31, 2016, respectively
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11,854,063
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–
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Stockholders' Deficit:
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Preferred Stock, $.0001 par value; 5,000,000 shares authorized, zero and 240,000 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
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–
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25
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Common stock, $.0001 par value; 500,000,000 shares authorized; 191,421,390 and 99,020,103 shares issued and outstanding at March 31, 2017, and December 31, 2016, respectively
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19,153
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9,913
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Additional paid-in capital
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43,925,693
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38,652,075
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Accumulated other comprehensive income (loss)
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–
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(13,047
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)
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Subscription receivable
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(456,504
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)
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–
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Accumulated deficit
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(57,467,240
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)
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(51,182,093
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)
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Total Stockholders' Deficit
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(13,978,898
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)
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(12,533,127
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Total Liabilities and Stockholders' Deficit
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$
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1,320,333
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$
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726,173
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See notes to condensed consolidated financial statements.
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MOBIQUITY
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TECHNOLOGIES, INC.
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Condensed Consolidated Statements of Operations
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Three Months Ended March 31,
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2017
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2016
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Unaudited
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Unaudited
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Revenues
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Product revenue
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$
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352,332
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$
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458,050
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Service revenue
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81,787
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59,182
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434,119
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517,232
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Cost of Revenues
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Cost of product revenue
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334,276
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453,396
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Cost of service revenue
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96,292
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108,193
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430,568
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561,589
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Gross Profit
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3,551
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(44,357
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)
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Operating Expenses:
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Selling, general and administrative
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1,860,195
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2,521,308
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Total Operating Expenses
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1,860,195
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2,521,308
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Loss from Operations
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(1,856,644
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(2,565,665
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Other Income (Expense):
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Interest expense
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(1,133,933
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(630,027
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Interest income
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–
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1
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Change in derivatives
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462,193
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219,338
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Derivative expense
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(1,038,439
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)
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–
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Loss on extinguishment of debt
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(2,706,197
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)
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–
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Impairment of intangible assets
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(12,127
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)
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–
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Total Other Income (Expense)
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(4,428,503
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)
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(410,688
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Net Loss
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(6,285,147
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)
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$
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(2,976,353
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)
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Other Comprehensive Income (Loss)
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13,047
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(20,042
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)
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Net Comprehensive Loss
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$
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(6,272,100
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)
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$
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(2,996,395
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Net Loss Per Common Share:
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Basic and Diluted
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$
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(0.06
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)
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$
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(0.04
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)
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Weighted Average Common Shares Outstanding:
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Basic and Diluted
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111,234,302
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80,061,939
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See notes to condensed consolidated financial statements.
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MOBIQUITY
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TECHNOLOGIES, INC.
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Consolidated Statements of Cash Flows
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Three Months Ended March 31,
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2017
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2016
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Cash Flows from Operating Activities:
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Net loss
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$
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(6,285,147
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)
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$
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(2,976,353
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation Expense
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78
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30,628
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Amortization - Intangible Assets
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7,150
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7,150
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Amortization - Debt discount
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641,363
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525,279
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Stock issued for services
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314,310
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–
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Change in derivative instrument
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(462,193
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)
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(219,338
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)
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Stock-based compensation
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273,092
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183,785
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Initial derivative expense
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1,038,439
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–
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Loss on extinguishment of debt
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2,706,197
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–
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Loss on disposal of assets
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12,241
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–
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Common stock issued for services
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–
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97,800
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Expenses paid from note
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567,737
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–
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Changes in operating assets and liabilities:
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Accounts receivable
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80,927
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37,908
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Inventory
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(5,945
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)
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(8,856
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)
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Prepaid expenses and other assets
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20,033
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21,911
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Accounts payable
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(167,543
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)
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21,730
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Accrued expenses and other current liabilities
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(81,554
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)
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36,632
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Accrued interest
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345,515
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–
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Total adjustments
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5,289,848
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734,629
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Net Cash Used in Operating Activities
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(995,300
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)
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(2,241,724
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)
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Cash Flows from Investing Activities:
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|
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|
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|
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Purchase of property and equipment
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–
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(4,430
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)
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Net Cash Used in Investing Activities
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–
|
|
|
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(4,430
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)
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Cash Flows from Financing Activities:
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Proceeds from the issuance of notes, net
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1,300,000
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|
|
–
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Proceeds received from exercising warrants
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95,834
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|
|
–
|
|
Proceeds from issuance of common stock
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311,250
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|
|
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–
|
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Cash paid on accrued interest
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|
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(3,140
|
)
|
|
|
–
|
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Proceeds for the issuance of preferred stock
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–
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400,000
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Net Cash Provided by Financing Activities
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1,703,944
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|
|
|
400,000
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Net change in Cash and Cash Equivalents
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708,644
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|
|
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(1,846,154
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)
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Cash and Cash Equivalents, beginning of period
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213,184
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|
|
|
2,044,662
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Change in foreign currency
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–
|
|
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(20,042
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)
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Cash and Cash Equivalents, end of period
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$
|
921,828
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|
|
$
|
178,466
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|
|
|
|
|
|
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Supplemental Disclosure Information:
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Cash paid for interest
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$
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–
|
|
|
$
|
38,075
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|
Cash paid for taxes
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|
$
|
–
|
|
|
$
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–
|
|
|
|
|
|
|
|
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Non-cash Financing and Investing Activities:
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|
|
|
|
|
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Stock issued for interest
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$
|
670,631
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|
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$
|
35,215
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Conversion of note and interest into AAA Preferred
and Common Stock
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|
$
|
12,749,771
|
|
|
$
|
–
|
|
See notes to condensed consolidated financial statements.
MOBIQUITY TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS – On September
10, 2013, Mobiquity Technologies, Inc. changed its name from Ace Marketing & Promotions, Inc. “the Company” or
“Mobiquity”). We operate through two wholly-owned U.S. subsidiaries, namely, Mobiquity Networks, Inc. and Ace Marketing
& Promotions, Inc. Mobiquity Networks owns 100% of Mobiquity Wireless S.L.U, a company incorporated in Spain. This corporation
had an office in Spain to support our U.S. operations, which office was closed in the fourth quarter of 2016.
We operate a national location-based mobile
advertising network that has developed a consumer-focused proximity network 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 three months ended March 31, 2017. As of March 31, 2017, the Company has an accumulated
deficit of $57,467,240. The Company has had negative cash flows from operating activities of $995,300 for the three months ended March
31, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern.
Management has plans
to address the Company’s financial situation as follows:
In the near term, management
plans to continue to focus on raising the funds necessary to implement the Company’s business plan related to the Bluetooth-enabled
iBeacon compatible technology. Management will continue to seek out 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.
The Condensed Consolidated
Balance Sheets as of March 31, 2017, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2017
and 2016 and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 have been prepared
by us without audit, and in accordance with the requirements of Form 10-Q and, therefore, they do not include all information and
footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting
principles generally accepted in the United States of America. In our opinion, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly in all material respects our financial position as of
March 31, 2017, results of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended
March 31, 2017 and 2016. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the
three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year. We have evaluated
subsequent events through the filing of this Form 10-Q with the SEC, and determined there have not been any events that have occurred
that would require adjustments to our unaudited Condensed Financial Statements.
The information contained
in this report on Form 10-Q should he read in conjunction with our Form 10-K for our fiscal year ended December 31, 2016.
ESTIMATES - The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS- The
Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance
on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability,
as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that
market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes
a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques,
are assigned a hierarchical level.
The following are the
hierarchical levels of inputs to measure fair value:
|
·
|
Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
|
·
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
·
|
Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts
of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable &
accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity
of these instruments.
The Company accounts
for its derivative liabilities, at fair value, on a recurring basis under level 2.
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair value of derivatives
|
|
|
$
|
–
|
|
|
$
|
1,797,007
|
|
|
$
|
–
|
|
|
$
|
1,797,007
|
|
Embedded Conversion Features
The Company evaluates
embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the
embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with
changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the
instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial
conversion feature.
Derivative Financial Instruments
The
Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting
related to four convertible notes issued and outstanding totaling $1,200,000 which included a ratchet provision in the
conversion prices which range between $.05-.30. 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 March 31, 2017. The fair values of the derivative instruments are measured each quarter, which resulted in
a gain of $462,193 and derivative expense of $1,038,439 during the three and months ended March 31, 2017. As of March 31,
2017, the fair market value of the derivatives aggregated $1,797,007, using the following assumptions: estimated 0.1 to 0.5-year
term, estimated volatility of 211.09% to 338.04%, and a discount rate of 0.00% to 0.92%.
Cash and cash equivalents
include money market securities that are considered to be highly liquid and easily tradable as of March 31, 2017 and December 31,
2016. These securities are valued using inputs observable in active markets for identical securities and are therefore classified
as Level 1 within our fair value hierarchy.
The carrying amounts
of financial instruments, including accounts receivable, accounts payable and accrued liabilities, and promissory note, approximated
fair value as of March 31, 2017 and December 31, 2016, because of the relatively short-term maturity of these instruments and
their market interest rates. No instruments are carried at fair value.
CASH AND CASH EQUIVALENTS
-
The Company considers all highly liquid debt instruments with a maturity of three months
or less, as well as bank money market accounts, to be cash equivalents. As of March 31, 2017, and December 31, 2016, the balances
were $921,828 and $213,184, 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 March 31, 2017, and December 31, 2016, the Company exceeded FDIC limits by $632,031 and $0, respectively.
REVENUE RECOGNITION
— The Company recognizes revenue, for all revenue streams, when it is realized or realizable and estimable in accordance
with ASC 605,
"Revenue Recognition".
The Company will recognize revenue only when all of the following criteria
have been met:
|
·
|
Persuasive evidence for an agreement exists;
|
|
·
|
Service has been provided;
|
|
·
|
The fee is fixed or determinable; and,
|
|
·
|
Collection is reasonably assured.
|
ACE MARKETING —
Ace Marketing's revenue is recognized when title and risk of loss transfers to the customer and the earnings process is complete.
In general, title passes to our customers upon the customer's receipt of the merchandise. Revenue is recognized on a gross basis
since Ace Marketing has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit
risk. Advance payments made by customers are included in customer deposits. Ace Marketing records all shipping and handling fees
billed to customers as revenues and related costs as cost of goods sold, when incurred. Additional source of revenue, derived from
emails/texts directly to consumers are recognized under contractual arrangements. Revenue from this advertising method is recognized
at the time of service provided.
MOBIQUITY NETWORKS – Revenue is recognized
with the billing of an advertising contract or data 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 March 31, 2017, and
December 31, 2016, 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 March 31, 2017, and December 31, 2016, 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 and $12,127 for the period ended March 31, 2017.
WEBSITE TECHNOLOGY
- Website technology developed during the prior years were capitalized for the period of development and testing. Expenditures
during the planning stage and after implementation have been expensed in accordance with ASC 985.
ADVERTISING COSTS
-
Advertising costs are expensed as incurred. For the three months ended March 31, 2017 and March 31, 2016, there were advertising
costs of $0 and $0, respectively.
ACCOUNTING FOR STOCK
BASED COMPENSATION. Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense
over the requisite service period. The Company uses the Black-Sholes option-pricing model to determine fair value of the awards,
which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain their
vested stock options before exercising them ("expected term"), the estimated volatility of the Company's common stock
price over the expected term ("volatility") and the number of options for which vesting requirements will not be completed
("forfeitures"). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation,
and the related amount recognized on the consolidated statements of operations. Refer to Note 6 "Stock Option Plans"
in the Notes to Consolidated Financial Statements
in
this report for a more detailed discussion.
BENEFICIAL CONVERSIONS
- Debt instruments that contain a beneficial conversion feature are recorded as deemed interest to the holders of the convertible
debt instruments. The beneficial conversion is calculated as the difference between the fair values of the underlying common stock
less the proceeds that have been received for the debt instrument limited to the value received.
FOREIGN CURRENCY TRANSLATIONS
- The Company's functional and reporting currency is the U.S. dollar. We 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.
INCOME TAXES - Deferred
income taxes are recognized for temporary differences between financial statement and income tax basis of assets and liabilities
for which income tax or tax benefits are expected to be realized in future years. A valuation allowance is established to reduce
deferred tax assets, if it is more likely than not, that all or some portion of such deferred tax assets will not be realized.
The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We have reviewed the
FASB issued Accounting Standards Update ("ASU") accounting pronouncements and interpretations thereof that have effectiveness
dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter
previous generally accepted accounting principles and does not believe that any new or modified principles will have a material
impact on the corporation's reported financial position or operations in the near term. The applicability of any standard is subject
to the formal review of our financial management and certain standards are under consideration.
NOTE 2: LOSS PER SHARE
Basic loss per
common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the
period. Dilutive loss per share gives effect to stock options and warrants, which are considered to be dilutive common stock
equivalents. Basic loss per common share was computed by dividing net loss by the weighted average number of shares of common
stock outstanding. The number of common shares potentially issuable upon the exercise of certain options and warrants that
were excluded from the diluted loss per common share calculation was approximately 66,183,884 because they are anti-dilutive
as a result of a net loss for the three months ended March 31, 2017.
NOTE 3: CONVERTIBLE PROMISSORY NOTE
Summary of Convertible
Promissory Notes:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Arnost Note
|
|
$
|
–
|
|
|
$
|
322,000
|
|
Cavu Notes net of $0 for 2017 and $23,292 for 2016
|
|
|
100,000
|
|
|
|
241,621
|
|
Berg Notes (a)
|
|
|
50,000
|
|
|
|
3,722,000
|
|
Investor Note, net of discounts
|
|
|
212,258
|
|
|
|
6,546,654
|
|
Total Debt
|
|
|
362,258
|
|
|
|
10,832,275
|
|
Current portion of debt
|
|
|
362,258
|
|
|
|
10,832,275
|
|
Long-term portion of debt
|
|
$
|
–
|
|
|
$
|
–
|
|
|
(a)
|
Between August and December 2015, the Company borrowed $3,675,000 from accredited investors. These loans are due and payable the earlier of December 31, 2016 or the completion of an equity financing of at least $2,500,000. Upon the sale of the unsecured promissory notes, the Company issued $1 of principal, one share of common stock and a warrant to purchase one share of common stock at an exercise price of $0.40 per share through August 31, 2017. Accordingly, an aggregate of 3,675,000 shares of common stock and warrants to purchase a like amount were issued in the last six months of 2015. Each noteholder has the right to convert the principal of their note and accrued interest thereon at a conversion price of $0.30 per share or at the noteholder’s option, into equity securities of the Company on the same terms as the last equity transaction completed by the Company prior to each respective conversion date.
|
The
Company has financial instruments that are considered derivatives or contain embedded features subject to
derivative accounting
related to four convertible notes issued totaling $1,200,000 which included a ratchet provision
in the conversion price of $.05 or $.30 or a price equal to the last equity transaction completed by the Company as part of
a subscription agreement
. The notes have maturity dates ranging from May 31,
2017 – September 28, 2017. 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 March 31, 2017. The fair values of the derivative instruments are measured each quarter,
which resulted in a gain of $462,193 and derivative expense of $1,038,439 during the year ended March 31, 2017. As of
March 31, 2017, the fair market value of the derivatives aggregated $1,797,007, using the following assumptions: estimated
0.1 to 0.5-year term, estimated volatility of 211.09% to 338.04%, and a discount rate of 0.00% to 0.92%.
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%.
In February 2017, The Company debt holders converted $3,672,000
of notes being converted at 0.05 per share into 73,440,000 shares of common stock.
February 28, 2017, the Company entered
into an agreement with two non-affiliated persons to provide $1.6 million of short term secured debt financing in three monthly
tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection
with this transaction, the Company agreed to issue an origination fee of 3,200,000 warrants. Alexander Capital L.P. acted as Placement
Agent and Advisor for this transaction.
In February 2017,
the Company reported that all of its Series AA preferred stock and substantially all of its outstanding debt both secured and
unsecured (approximately $12.1 million) have been converted into equity securities of the Company as outlined below. It
should be noted that the capital transactions below were based on a premium to the average closing sale price of $0.045 per
share during the 60 day period prior to February 08, 2017. The Company had outstanding 1,122,588 shares of newly designated
Series AAA preferred stock and $1,350,000 of convertible notes. The convertible notes consist of $1,200,000 of secured notes
and $150,000 of unsecured notes. Of the 1,122,588 shares of Series AAA preferred stock outstanding, 240,000 Series AA
preferred stock with an original cost basis of $2.4 million were converted into Series AAA preferred stock. The remaining
882,588 shares of Series AAA preferred stock were issued in exchange for the conversion of principal and accrued interest of
approximately $11,854,038 of unsecured debt. This conversion resulted in a loss on extinguishment of debt of $2,706,197.
The terms of the Series AAA preferred stock can be summarized as follows:
The price of
each preferred share shall be, at the option of the holder, convertible into 100 shares of Common Stock. If the preferred shares are converted, the subscriber will then receive 100%
warrant coverage, with each warrant exercisable at $.05 per share with a cash payment to the Company through the close of
business on December 31, 2019. The preferred shares have no voting or other preferences except as required by law other than
the right of conversion described above and a liquidation preference equal to $.01 per share.
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.
At conversion date the balance of the letters of credit of $456,503 was recorded as Subscription receivable to be paid in the
second quarter of 2017.
NOTE 4: STOCKHOLDERS' EQUITY (DEFICIT)
In December 2015,
the Company sold 200,000 shares of its Series AA Preferred Stock at a purchase price of $10 per share and raised $2 million.
Each share of Preferred Stock is convertible into 50 shares of Common Stock at an effective conversion price of $.20 per
share of Common Stock. The Preferred Stockholder has anti-dilution protection rights through December 31, 2016. In the first
quarter of 2016, the Company sold an additional 40,000 shares of its Series AA Preferred Stock and raised $400,000. In 2017,
the Company exchanged 240,000 shares of AA preferred stock for AAA preferred stock. Also in 2017, the Company issued
an additional 882,588 shares of AAA preferred stock in exchange for outstanding debt and accrued interest. The AAA
Preferred shares at a purchase price of $10 per share shall be, at the option of the holder, convertible into 100 shares of
Common Stock. If the preferred shares are converted, the subscriber will then receive 100% warrant coverage, with each
warrant is exercisable at $0.05 per share with an expiration date of December 31, 2019. The preferred shares have no voting
or other preferences except as required by law other than the right of conversion described above and a liquidation
preference equal to $.01 per share.
Shares issued for services
During the quarter ended March
31, 2017, the Company issued 3,800,000 common shares, at $0.06 to $0.13 per share, valued at $314,310.
Shares issued for accrued interest
During the
quarter ended March 31, 2017, the Company issued 3,919,620 common shares, at $0.04 to $0.05 per share, valued at $194,790 and
AAA preferred shares of 47,588, at $10.00 per share, valued at $475,841.
During the year
entered December 31, 2016, the Company issued 1,000,000 common shares in satisfaction of back rent owed the landlord in the
sum of $57,157. The shares were valued at $20,000 and a gain on settlement of debt was recorded of $36,177.
During the year
ended December 31, 2016, the Company issued 11,908,335 common shares, at $0.05 per share, valued at $594,417 for the exercise
of outstanding warrants. During the quarter ended March 31, 2017, the Company issued 1,916,667 shares, at $0.05 per share,
valued at $95,834 for cash for the exercise of outstanding warrants.
See Note 3 above for a discussion of first
quarter 2017 stock transactions.
NOTE 5: STOCK-BASED COMPENSATION
Compensation costs
related to share-based payment transactions, including employee stock options, are recognized in the financial statements utilizing
the straight line method for the cost of these awards.
The Company's results
for the three month periods ended March 31, 2017 and 2016 include employee share-based compensation expense totaling $273,092 and
$183,785, respectively. Such amounts have been included in the Condensed Consolidated Statements of Operations within selling,
general and administrative expenses. No income tax benefit has been recognized in the statement of operations for share-based compensation
arrangements due to a history of operating losses.
The following table
summarizes stock-based compensation expense for the three months ended March 31, 2017 and 2016:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Employee stock-based compensation - option grants
|
|
$
|
150,592
|
|
|
$
|
151,785
|
|
Employee stock-based compensation - stock grants
|
|
|
–
|
|
|
|
–
|
|
Non-Employee stock-based compensation - option grants
|
|
|
11,500
|
|
|
|
32,000
|
|
Non-Employee stock-based compensation - stock grants
|
|
|
–
|
|
|
|
–
|
|
Non-Employee stock-based compensation-stock warrant
|
|
|
111,000
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
273,092
|
|
|
$
|
183,785
|
|
NOTE 6: STOCK OPTION PLAN
In the first quarter
of 2016, the Board approved and stockholders ratified a 2016 Employee Benefit and Consulting Services Compensation Plan covering
10,000,000 shares (the “2016 Plan”) and approving moving all options which exceeded the 2009 Plan limits to the 2016
Plan.
All stock options under
the Plans are granted at or above the fair market value of the common stock at the grant date. Employee and non-employee stock
options vest over varying periods and generally expire either 5 or 10 years from the grant date. The fair value of options at the
date of grant was estimated using the Black-Scholes option pricing model. For option grants, the Company will take into consideration
payments subject to the provisions of ASC 718 "Stock Compensation", previously Revised SFAS No. 123 "Share-Based
Payment" ( "SFAS 123 (R)"). The fair values of these restricted stock awards are equal to the market value of the
Company's stock on the date of grant, after taking into certain discounts. The expected volatility is based upon historical volatility
of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of
grant and exercise of options for all employees. Previously, such assumptions were determined based on historical data.
The weighted average
assumptions made in calculating the fair values of options granted under the Plans during the three months ended March 31,
2017 and 2016 are as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Expected volatility
|
|
|
146.77%
|
|
|
|
133.46%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
Risk-free interest rate
|
|
|
1.89%
|
|
|
|
1.61%
|
|
Expected term (in years)
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Share
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2017
|
|
|
|
18,315,001
|
|
|
|
.41
|
|
|
|
5.14
|
|
|
$
|
5,625
|
|
|
Granted
|
|
|
|
250,000
|
|
|
|
.05
|
|
|
|
5.00
|
|
|
|
–
|
|
|
Exercised
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
|
17,815,001
|
|
|
|
.37
|
|
|
|
7.94
|
|
|
|
37,375
|
|
|
Options exercisable, March 31, 2017
|
|
|
|
15,412,917
|
|
|
|
.40
|
|
|
|
4.30
|
|
|
$
|
37,375
|
|
The weighted-average
grant-date fair value of options granted during the three months ended March 31, 2017 and 2016 was $0.03 and $0.18, respectively.
The aggregate intrinsic
value of options outstanding and options exercisable at March 31, 2017 is calculated as the difference between the exercise price
of the underlying options and the market price of the Company's common stock for the shares that had exercise prices, that were
lower than the $33,375 closing price of the Company's common stock on March 31, 2017.
As of March 31, 2017,
the fair value of unamortized compensation cost related to unvested stock option awards was $400,721.
The weighted average
assumptions made in calculating the fair value of warrants granted during the three months ended March 31, 2017 and 2016 are
as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Expected volatility
|
|
|
151.49%
|
|
|
|
–
%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
Risk-free interest rate
|
|
|
151.49%
|
|
|
|
–%
|
|
Expected term (in years)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Share
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Outstanding, January 1, 2017
|
|
|
|
21,252,734
|
|
|
$
|
.48
|
|
|
|
1.40
|
|
|
$
|
–
|
|
|
Granted
|
|
|
|
3,200,000
|
|
|
|
.10
|
|
|
|
5.00
|
|
|
|
|
|
|
Exercised
|
|
|
|
(1,916,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
|
22,536,067
|
|
|
$
|
.42
|
|
|
|
4.45
|
|
|
|
131,000
|
|
|
Options warrants exercisable, March 31, 2017
|
|
|
|
22,536,067
|
|
|
$
|
.43
|
|
|
|
.81
|
|
|
$
|
131,000
|
|
NOTE 7: COMMITMENTS AND CONTINGENCIES
COMMITMENTS –
In April 2011, we
entered into our agreement with Simon Property Group, which agreement was amended first in September 2013 and then in
July 2014. This second amendment provides for us to expand our location-based mobile mall network footprint to about 195
current Simon malls across the United States. Our agreement with Simon currently expires December 31, 2017. Simon is entitled
to receive fees from us equal to the greater of a pre-set per mall fee or a percentage of revenues derived from within the
Simon Mall network. The revenue share agreement in which Simon participates will exceed the minimum annual mall fees if the
Company has generated revenues within the Simon network of about $15 million or more in a calendar year. Our agreement with
Simon requires the company to maintain letters of credit for each calendar year under the agreement represented by the
minimum amount of fees due for such calendar year. For 2015, the minimum fees of $2.7 million has been secured through two
bank letters of credit, one of which was issued in the amount of $1,350,000 utilizing the funds of a non-affiliated
stockholder and the second letter of credit was obtained in the same amount through the funds of Thomas Arnost, our Executive
Chairman. In the event Simon draws down upon either letter of credit, we have until the next minimum payment due date
(approximately 90 days) after the draw down to obtain replacement letters of credit. Each person who secured our letters of
credit has the opportunity to notify us that they wish to turn the cash funds securing the letters of credit over to us and
to convert such funds into Common Stock currently at a conversion price of $.20 per share. Also, each person who issued the
letter of credit is receiving quarterly, while the letters of credit are outstanding, options to purchase 125,000 shares of
Common Stock, exercisable at the prevailing market price per share on the date of grant and interest at the rate of 8% per
annum on the monies that they have had to set aside in their bank accounts and are unable to have access to such monies. In
April, July, October, 2016 and January 2017, Simon drew down on each bank letter of credit for an aggregate of $1,121,748
owed to each letter of credit provider. During the first quarter of 2017, the Letter of Credit holders converted the entire
$2,700,000 into 54,000,000 shares of Common Stock.
Pursuant to a master
agreement effective August, 2015, we entered into an agreement with PREIT pursuant to which we have the right to install our Mobi-Beacons
and to send information across the air space of the common areas of our PREIT mall network, which will include approximately 27
malls in select states in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising
in the interior common areas of these malls is exclusive. Under our agreement between us and PREIT, PREIT is entitled to an agreed
upon revenue share over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is
not attained for any measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days
prior written notice. PREIT may also terminate the agreement if it determines that Mobiquity’s installed equipment is not
adequate and/or provides a negative user experience for the visitors to the PREIT malls. The agreement also provides for PREIT
to adjust the number of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the
malls.
Pursuant to a master agreement entered
into in 2015, we entered into an agreement with Rouse pursuant to which we have the right to install our Mobi-Beacons to send information
across the air space of the common areas of our Rouse mall network, which will include approximately 30 malls in select states
in the United States. Our right to install our Mobi-Beacons to market and sell third party paid advertising in the interior common
areas of these malls is exclusive. Under our agreement between us and Rouse, Rouse is entitled to an agreed upon revenue share
over the four-year term of the agreement. In the event the net revenue share as defined in the agreement is not attained for any
measurement period, also as defined in the agreement, either party may terminate the agreement upon 90 days prior written notice.
Either party may also terminate the agreement due to a material breach which is not cured within 30 days of written notice. Also,
Rouse upon at least 60 days written notice to us prior to the end of the second contract year, may terminate the agreement with
respect to any participating property for any reason at the end of the second contract year. The agreement also provides for Rouse
to adjust the number of malls subject to the agreement from time-to-time based upon changes in its beneficial ownership in the
malls.
In February 2012, the Company entered into
a lease agreement for new executive office space of approximately 4,200 square feet located at 600 Old Country Road, Suite 541,
Garden City, NY 11530. The lease agreement 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 $30,100 (inclusive of taxes) at 1105 Portion Road, Farmingville, NY 11738 expired
in November 2013. We currently lease this property on a month to month basis for approximately $2,500 per month beginning December
2014, with a 5% increase in rent each 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 $6,000 each month.
Minimum future rentals under non-cancelable
lease commitments are as follows:
YEARS ENDING DECEMBER 31,
|
|
|
|
|
|
2017
|
|
|
|
2,168,653
|
|
|
2018
|
|
|
|
–
|
|
|
2019 and thereafter
|
|
|
|
–
|
|
|
|
|
|
$
|
2,168,653
|
|
Rent and real estate tax expense was approximately
$482,500 and $858,900 for the three months ended March 31, 2017 and 2016, 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.
Separation Agreement
In April 2017, Michael
Trepeta entered into a separation agreement with the Company pursuant to which he resigned as an executive officer and director.
There is currently a vacancy in the Board of Directors of the Company. After his resignation, the Board changed Dean Julia’s
title from Co-Chief Executive Officer to Chief Executive Officer.
Pursuant to Michael
Trepeta’s separation agreement, Mr. Trepeta is entitled to the following benefits:
|
·
|
Six months’ coverage under the Company’s existing director/officer insurance policy;
|
|
·
|
Indemnification per existing employment agreement;
|
|
·
|
Expense reimbursement through May 31, 2017;
|
|
·
|
All options vested shall continue until their normal expiration date; and
|
|
·
|
Mutual releases.
|
Thomas Arnost
In December 2014, we entered into a three-year
employment agreement with Thomas Arnost serving as Executive Chairman of the board. Mr. Arnost receives a monthly salary of
$10,000 plus an annual grant of options for serving on the board of directors. In the event of his termination, by Mr. Arnost or
by the company for cause, Mr. Arnost will receive his pay through the termination date. In the event that Mr. Arnost is terminated
without cause, he shall be entitled to receive his salary paid through the end of the term of his agreement. Mr. Arnost may terminate
the agreement at any time by giving three months’ prior written notice to our board of directors. Mr. Arnost will also be
entitled to indemnification against all claims, judgments, damages, liabilities, costs and expenses (including reasonably legal
fees) arising out of, based upon or related to his performance of services to us, to the maximum extent permitted by law.
Sean Trepeta
In December 2014, Mobiquity Networks entered
into an employment agreement with Sean Trepeta, to serve as President of Mobiquity Networks as an employee at will. Mr. Trepeta,
as a full-time employee, is to be paid a salary at the rate of $20,000 per month. Upon the execution of the agreement, he received
10-year options to purchase 1,500,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015,
he will be entitled to a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and
a further bonus of $125,000 for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12
million, it being understood that any revenues which do not have a 30% margin shall not count toward these totals. All options
granted to Mr. Trepeta will become immediately vested in the event of a change in control of our Company or sale of substantially
all of our assets. In the event we terminate Mr. Trepeta without cause, after six months of continued employment under the
employment agreement, Mr. Trepeta is entitled to receive three months’ severance pay.
Paul Bauersfeld
In December 2014, we entered into an employment
agreement with Paul Bauersfeld, our Chief Technology Officer, who is an employee at will. Mr. Bauersfeld, as a full-time employee,
is to be paid a salary at the rate of $25,000 per month. Upon the execution of the agreement, he received 10-year options to purchase
1,000,000 shares of our common stock vesting quarterly over a period of three years. For calendar 2015, he will be entitled to
a bonus of $125,000 upon revenues of Mobiquity Networks achieving a minimum of $6 million in revenues and a further bonus of $125,000
for a total of $250,000 at such time as Mobiquity Network’s revenues achieve a minimum of $12 million, it being understood
that any revenues which do not have a 30% margin shall not count toward these totals. The foregoing compensatory arrangements with
Mr. Bauersfeld is in addition to the non-statutory stock options to purchase 2,600,000 shares of our common stock previously granted
to Mr. Bauersfeld. All options granted to Mr. Bauersfeld will become immediately vested in the event of a change of control
of our company or sale of substantially all of our assets. In the event we terminate Mr. Bauersfeld without cause. Mr. Bauersfeld
is entitled to receive six months’ severance pay.
Sean McDonnell
Sean McDonnell, our Chief Financial Officer,
is an employee at will and is currently receiving a salary of $132,000 per annum.
TRANSACTIONS WITH MAJOR CUSTOMERS —
The Company sells its
branded merchandise to a geographically diverse group of customers, performs ongoing credit evaluations of its customers and generally
does not require collateral. During the three months ended March 31, 2017 a customer accounted for approximately 23% of net revenues
and for the three months ended March 31, 2016 a customer accounted for approximately 47% of net revenues. The Company holds
on hand certain items that are ordered on a regular basis.
NOTE 8: 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 Mobile Marketing.
Corporate management
defines and reviews segment profitability based on the same allocation methodology as presented in the segment data tables below:
First Quarter of Fiscal 2016
|
|
Quarter Ended March 31, 2016
|
|
|
|
Ace Marketing
& Promotions,
Inc.
|
|
|
Mobiquity
Networks, Inc.
|
|
|
Total
|
|
Revenues, net
|
|
$
|
458,050
|
|
|
|
59,182
|
|
|
$
|
517,232
|
|
Operating (loss), before interest amortization, depreciation and taxes
|
|
|
(699,493
|
)
|
|
|
(1,609,056
|
)
|
|
|
(2,308,549
|
)
|
Derivative expense
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Loss on settlement of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Interest income
|
|
|
1
|
|
|
|
–
|
|
|
|
1
|
|
Interest (expense)
|
|
|
(630,027
|
)
|
|
|
–
|
|
|
|
(630,027
|
)
|
Depreciation and amortization
|
|
|
(4,941
|
)
|
|
|
(32,837
|
)
|
|
|
(37,778
|
)
|
Net Loss
|
|
|
(1,334,460
|
)
|
|
|
(1,641,893
|
)
|
|
|
(2,976,353
|
)
|
Assets at March 31, 2016
|
|
|
1,272,616
|
|
|
|
108,047
|
|
|
|
1,380,663
|
|
First Quarter of Fiscal 2017
|
|
Quarter Ended March 31, 2017
|
|
|
|
Ace Marketing
& Promotions,
Inc.
|
|
|
Mobiquity
Networks, Inc.
|
|
|
Total
|
|
Revenues, net
|
|
|
352,332
|
|
|
|
81,787
|
|
|
|
434,119
|
|
Operating (loss), before interest amortization, depreciation and taxes
|
|
|
(172,784
|
)
|
|
|
(1,226,362
|
)
|
|
|
(1,399,146
|
)
|
Derivative expense
|
|
|
–
|
|
|
|
(1,038,439
|
)
|
|
|
(1,038,439
|
)
|
Loss on settlement of debt
|
|
|
–
|
|
|
|
(2,706,197
|
)
|
|
|
(2,706,197
|
)
|
Interest income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Interest (expense)
|
|
|
–
|
|
|
|
(1,133,933
|
)
|
|
|
(1,133,933
|
)
|
Depreciation and amortization
|
|
|
(2,532
|
)
|
|
|
(4,900
|
)
|
|
|
(7,432
|
)
|
Net Loss
|
|
|
(175,316
|
)
|
|
|
(6,109,831
|
)
|
|
|
(6,285,147
|
)
|
Assets at March 31, 2017
|
|
|
601,551
|
|
|
|
718,782
|
|
|
|
1,320,333
|
|
All intersegment sales
and expenses have been eliminated from the table above.
NOTE 9: SUBSEQUENT EVENTS
There are no subsequent
events required to be disclosed in the Notes to Financial Statements through the date of the report, except as follows:
|
·
|
In April 2017, the Company received the third portion of the short term secured debt financing.
|
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information contained
in this Form 10-Q and documents incorporated herein by reference are intended to update the information contained in the Company's
Form 10-K for its fiscal year ended December 31, 2016 which includes our audited financial statements for the year ended December
31, 2016 and such information presumes that readers have access to, and will have read, the "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Risk Factors" and other information contained in such Form 10-K
and other Company filings with the Securities and Exchange Commission ("SEC").
This Quarterly Report
on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements
involve risks and uncertainties, and actual results could be significantly different than those discussed in this Form 10-Q. Certain
statements contained in Management's Discussion and Analysis, particularly in "Liquidity and Capital Resources," and
elsewhere in this Form 10-Q are forward-looking statements. These statements discuss, among other things, expected growth, future
revenues and future performance. Although we believe the expectations expressed in such forward-looking statements are based on
reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ
materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. The forward-looking
statements are subject to risks and uncertainties including, without limitation, the following: (a) changes in levels of competition
from current competitors and potential new competition, (b) possible loss of customers, and (c) the company's ability to attract
and retain key personnel, (d) The Company's ability to manage other risks, uncertainties and factors inherent in the business and
otherwise discussed in this 10-Q and in the Company's other filings with the SEC. The foregoing should not be construed as an exhaustive
list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made
by us. All forward-looking statements included in this document are made as of the date hereof, based on information available
to the Company on the date thereof, and the Company assumes no obligation to update any forward-looking statements.
Company Overview
Mobiquity Technologies,
Inc., a New York corporation (the “Company”), is the parent company of two operating subsidiaries; Mobiquity Networks,
Inc.(“Mobiquity Networks”) and Ace Marketing & Promotions, Inc. (“Ace Marketing”). The Company’s
wholly-owned subsidiary, Mobiquity Networks has evolved and grown from a mobile advertising technology company focused on Driving
Awareness and Foot-traffic throughout its indoor mall-based beacon network, into a next generation mobile location data and marketing
company. Mobiquity Networks provides precise unique, at-scale location-based data and insights on consumer’s real world behavior
and trends for use in marketing and research. With our combined data sets of 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.
Mobiquity Networks is seeking to create several new revenue streams from the mobile data collection and analysis, including, but
not limited to; Push Notification Campaigns, Mobile Audiences & Segments, real-time
Data
Provision,
Attribution Reporting and Custom Research. The Company is also attempting to reduce expenses by renegotiating
certain Mall Developer Agreements.
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. We believe that our Mobiquity Networks business represents our greatest growth opportunity going forward.
Critical Accounting Policies
Our discussion and
analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared
in accordance with generally accepted accounting principles in the United States. The preparation of financial statements
requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate
our estimates including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical
experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe
that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial
statements.
Revenue Recognition
-
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 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.
Revenue Recognition
– Mobiquity Networks. Revenue is recognized with the billing of an advertising contract or data sale. The customer signs
a contract directly with us for an advertising campaign with mutually agreed upon term and is billed on the start date of the advertising
campaign, which are normally in short duration periods. The second type of revenue is through the licensing of our data. Revenue
from data can occur in two ways; the first is a direct feed, which is billed at the end of each month. The second way is through
the purchasing of audience segments. When an audience segment is purchased, we bill the buyer upon delivery, which is usually 1-2
days for the order date.
Allowance For Doubtful
Accounts
. We are required to make judgments based on historical experience and future expectations, as to the realizability
of our accounts receivable. We make these assessments based on the following factors: (a) historical experience, (b) customer concentrations,
customer credit worthiness, (d) current economic conditions, and (e) changes in customer payment terms.
Accounting For Stock
Based Compensation
. Stock based compensation cost is measured at the grant date fair value of the award and is recognized as
expense over the requisite service period. The company uses the Black-Sholes option-pricing model to determine fair value of the
awards, which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain
their vested stock options before exercising them (“expected term”), the estimated volatility of the company’s
common stock price over the expected term (“volatility”) and the number of options for which vesting requirements will
not be completed (“forfeitures”). Changes in the subjective assumptions can materially affect estimates of fair value
stock-based compensation, and the related amount recognized on the consolidated statements of operations.
Plan of Operation
Mobiquity Networks
derives its revenue utilizing the revenue streams mentioned above. All of the products used to derive revenue for the Company are
reliant on the collection of data. To achieve management’s revenue goals moving forward, we have developed a strategy to
increase the two main driving forces behind our data collection. One strategy is to increase the total number of users we see on
a monthly basis (“MAU”), and the second strategy is to increase the total number of locations (Places) available to
see our MAU’s visit over the same time period. We are currently seeing approximately 13,000,000 unique mobile devices by
the MAU on a monthly basis and roughly 20,000,000 unique devices for the first 100 days of 2017. The ability to see and collect
the data required from these unique devices comes from the installation of our proprietary Software Development Kit (SDK) into
third party mobile applications (Apps). To continue to grow the total number of unique devices we can see on a monthly basis, we
need to have our SDK installed in more third party Apps. We believe our unique offering to potential App partners gives us a competitive
advantage over others in the industry. The task of partnering with third party Apps for installation of our SDK is handled internally
by our business development team.
As of March 31, 2017,
we had approximately 200,000 Places in our proprietary Places database, and that number should increase to over 4,000,000 Places
by the end of the second quarter 2017, thus exponentially increasing the amount of data we collect. We have been able to steadily
increase the number of locations available in our Places database through the use of both open source and proprietary technologies.
The task of growing our Places database is handled by our internal technology team. The Company currently utilizes both internal
and outsourced resources to market and sell its product offerings. Management intends to hire additional sales personnel in the
last three quarters of 2017 as working capital permits.
RESULTS OF OPERATIONS
The following table
sets forth certain selected unaudited condensed statement of operations data for the periods indicated in dollars and as a percentage
of total net revenues. The following discussion relates to our results of operations for the periods noted and is not necessarily
indicative of the results expected for any other interim period or any future fiscal year. In addition, we note that the period-to-period
comparison may not be indicative of future performance.
|
|
Three Months Ended
March 31
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
434,119
|
|
|
$
|
517,232
|
|
Cost of Revenues
|
|
$
|
430,568
|
|
|
$
|
561,589
|
|
Gross Profit (Loss)
|
|
$
|
3,551
|
|
|
$
|
(44,357
|
)
|
Selling, General and Administrative Expenses
|
|
$
|
1,860,195
|
|
|
$
|
2,521,308
|
|
(Loss) from Operations
|
|
$
|
(1,856,644
|
)
|
|
$
|
(2,565,665
|
)
|
We generated revenues
of $434,119 in the first quarter of 2017 compared to $517,232 in the same period of the prior year. As our Mobiquity revenue streams
from collection of data and analysis is fairly new, at the current time, revenues Mobiquity Networks are $81,787 of our consolidated
revenues. In 2017, we anticipate our revenues increasing in our Mobiquity Networks subsidiary due to the implementation of our
new revenue business model.
Cost of revenues was
$430,568 or 99% of revenues in the first quarter of 2017 compared to $561,589 or 109% of revenues in the same fiscal period of
the prior year. Cost of revenues includes purchases and freight costs associated with the shipping of merchandise to our customers.
The change in cost of revenues of $131,021 in 2017 is related to volume and product mix of the products our customers purchased
along with the establishment of our Mobiquity devices.
Gross profit was $3,551
for the first quarter of 2017 or 1% of net revenues compared to $(44,357) in the same fiscal period of the prior year or (109)%
of revenues. Gross profits will vary period-to-period depending upon a number of factors including the mix of items sold and the
volume of product sold. Also, it is our practice to pass freight costs on to our customers with low to no profit margin. As advertising
revenue from the use of our Mobiquity devices increases, it is expected that our margins will increase significantly. As our mall
network has only recently been constructed and is currently being expanded, at the current time, revenues from the use of our Mobiquity
devices are not a material portion of our consolidated revenues.
Selling, general, and
administrative expenses were $1,860,195 for the first quarter of 2017 compared to $2,521,308 in the comparable period of the prior
year, a decrease of approximately $661,113. Such operating costs include payroll and related expenses, commissions, insurance,
rents, fee payments to Simon Property Group, Macerich malls and GGP malls professional (consulting) and public awareness fees.
The net operating loss
for the first quarter of 2017 was $1,856,644 as compared to $2,565,665 for the comparable period of the prior year. The change
in operating loss is attributable to reductions in salaries, rents commissions and non-cash stock based compensation.
No benefit for income
taxes is provided for in the reported periods due to the full valuation allowance on the net deferred tax assets. Our ability to
be profitable in the future is dependent upon the successful introduction and usage of our proximity marketing services.
Liquidity and Capital Resources
The Company had
cash and cash equivalents of $921,828 at March 31, 2017. Cash used in operating activities for the three months ended March
31, 2017 was $995,300. This resulted primarily from a net loss of $6,285,148, offset by stock based payments of $273,092 a
decrease in accounts receivable of $80,927 and a decrease in prepaid expenses and other assets of $20,033 and an decrease of
accounts payable and accrued expenses of $249,097 and the non-cash items of the change in fair value of derivative
liabilities of $462,193, derivative expense of $1,038,439 and the loss on settlement of debt of $2,706,197 and amortization
of debt discount of $643,363. Net cash was provided by financing activities of $1,703,944 from the sale of the Company's
Common Stock for the quarter ended March 31, 2017 of $311,250, proceeds from the exercise of warrants of $95,834 and net
proceeds from the issuance and extinguishment of notes of $1,300,000.
The Company had cash
and cash equivalents of $178,466 at March 31, 2016. Cash used in operating activities for the three months ended March 31, 2016
was $2,241,724. This resulted primarily from a net loss of $2,976,353, offset by stock based payments of $183,785 a decrease in
accounts receivable of $37,908 and a decrease in prepaid expenses and other assets of $13,055 and an increase of accounts payable
and accrued expenses of $58,363 and a gain on the change in fair value of derivative liabilities. The Company had an increase in
investing activities of $4,430 with the purchase of equipment. Net cash was provided by financing activities of $400,000 from the
sale of the Company's Preferred Stock for the quarter ended March 31, 2016.
Our Company commenced
operations in 1998 and was initially funded by our three founders, each of whom has made demand loans to our Company that have
been repaid. Since 1999, we have relied primarily on equity financing from outside investors to supplement our cash flow from operations.
We anticipate
that our future liquidity requirements will arise from the need to finance our accounts receivable and inventories, hire additional
sales persons, capital expenditures and possible acquisitions. The primary sources of funding for such requirements will be cash
generated from operations, raising additional capital from the sale of equity or other securities and borrowings under debt facilities
which currently do not exist. We believe that we can generate sufficient cash flow from these sources to fund our operations for
at least the next twelve months. In the event we should need additional financing, we can provide no assurances that we will be
able to obtain financing on terms satisfactory to us, if at all.
Recent Financings
In 2015
and 2016, we have completed the various financing summarized below.
Date
|
|
Dollar Amount
|
|
|
# of Securities Sold
|
|
|
|
|
|
|
January 2015
|
|
$
|
500,000
|
|
|
Issued two-year promissory note in the principal amount of $500,000
|
February 2015
|
|
$
|
850,000
|
|
|
Issued two-year promissory note in the principal amount of $850,000
|
March 2015
|
|
$
|
500,000
|
|
|
Issued 1,666,667 common shares and a like number of warrants
|
April 2015
|
|
$
|
1,710,000
|
|
|
Issued 5,700,000 common shares and a like number of warrants
|
May 2015
|
|
$
|
510,000
|
|
|
Issued 1,700,000 common shares and a like number of warrants
|
August/October 2015
|
|
$
|
3,675,000
|
|
|
Issued promissory notes in the principal amount of $3,675,000 and 3,675,000 shares of restricted common stock and warrants to purchase an additional 3,675,000 shares of restricted common stock
|
December 2015-
March 2016
|
|
$
|
2,400,000
|
|
|
Issued 240,000 shares of preferred stock convertible into 12,000,000 shares of common stock with anti-dilution protection for 2016
|
April – May 2016
|
|
$
|
1,025,000
|
|
|
Issued convertible promissory notes in the principal amount of $1,025,000, convertible at $.20 per share with 100% warrant coverage.
|
Third Quarter
2016
|
|
$
|
700,000
|
|
|
Issued short term convertible promissory notes in the principal amount oif $700,000 and prepaid interest of 4,900,000 common shares.
|
Fourth Quarter
2016
|
|
$
|
595,417
|
|
|
Exercise of outstanding warrants/options at $.05 per share and issuance of approximately 11,908,335 shares of common stock.
|
First Quarter 2017 Loan Agreements and Certain Transactions
Prior to the February
28, 2017 sale of secured debt, the Company’s holders of all of its Series AA preferred stock and substantially all of its
outstanding debt both secured and unsecured (approximately $14.5 million) have been converted into equity securities of the Company
as outlined below. It should be noted that the capital transactions below were based on a premium to the average closing sale price
of $0.045 per share during the 60 day period prior to February 08, 2017.
On February 28, 2017,
the Company entered into an agreement with a two non-affiliated persons to provide $1.6 million of short term secured debt financing
in three monthly tranches, with the first monthly tranche in the amount of $600,000. The Company will issue in connection with
each tranche, six-month secured convertible promissory note(s). Each note is initially convertible at $.05 per share. Any prepayment
of the note requires the payment of a 25% premium and guaranteed interest for the entire six-month note. In the case of default,
the amount owed by the Company will become 130% of the outstanding principal and accrued interest thereon. The Conversion Price
will rest in the event that the note is unpaid and in default on the sixth month anniversary date of the issuance of the note.
In connection with this transaction, the Company agreed to issue an origination fee of 1,600,000 shares of restricted common stock.
Alexander Capital L.P. acted as Placement Agent and Advisor for this transaction.
As of April 5, 2017,
the Company has outstanding 191,421,390 shares of common stock, 1,122,588 shares of newly designated Series AAA preferred stock
and $1,350,000 of convertible notes. The convertible notes consist of $1,200,000 of secured notes and $150,000 of unsecured notes.
Of the 1,122,588 shares of Series AAA preferred stock outstanding, 240,000 Series AA preferred stock with an original cost basis
of $2.4 million were converted into Series AAA preferred stock. The remaining 882,588 shares of Series AAA preferred stock were
issued in exchange for the conversion of principal and accrued interest of approximately $11,854,038 of unsecured debt. 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.
The Company also raised
an additional $407,084 from the exercise of outstanding warrants and new subscriptions. For these transactions, the Company issued
8,141,667 shares of common stock.
Transactions with Thomas Arnost, Executive Chairman
In December 2013, Thomas
Arnost, a director of Mobiquity, purchased from TCA Global Credit Master Fund, the Company’s outstanding convertible promissory
note in the amount of $350,000. Subsequently Mr. Arnost and the Company agreed to fix the conversion price of the note at $.30
per share, extend the due date of the Note to June 12, 2014, which was subsequently extended to December 22, 2014 and again extended
to December 31, 2015, subject to Mr. Arnost’s right to call the note at any time in his sole discretion, and increase the
interest rate to 15% per annum. In December 2015, Mr. Arnost extended the due date of the note to December 31, 2016 and the Company
agreed to lower the conversion price to $.20 per share.
Our agreement
with Simon Properties requires us to maintain letters of credit for each calendar year under the agreement represented by the
minimum amount of fees due for such calendar year. For 2015 and 2016, the minimum fees of $2.7 million has been secured
through two bank letters of credit, one of which was issued in the amount of $1,350,000 utilizing the funds and the second
letter of credit was obtained in the same amount through the funds of Thomas Arnost, our Executive Chairman. In the event
Simon draws down upon either letter of credit, we have until the next minimum payment date (about 90 days) after the draw
down to obtain replacement letters of credit. Each person who secured our letters of credit has the opportunity to notify us
that they wish to turn the cash funds securing the letters of credit over to us and to convert such funds into our common
stock. In February 2017, Thomas Arnost agreed to convert his $322,000 of secured debt and both Mr. Arnost and SNW JR
Properties agreed to convert their letters of credit and any accrued interest at a conversion price of $.05 per share as to
the principal amount and at market price for interest accrued at each respective interest accrual date. A total of 36,541,960
shares were issued to Mr. Arnost and 27,738,260 shares were issued to SNW JB Properties.