The following discussion should be read in conjunction with our financial
statements and the notes thereto appearing elsewhere in this Form 10-K. All
statements contained herein that are not historical facts, including, but not
limited to, statements regarding anticipated future capital requirements, our
future plan of operations, our ability to obtain debt, equity or other
financing, and our ability to generate cash from operations, are based on
current expectations. These statements are forward-looking in nature and involve
a number of risks and uncertainties that may cause the Company's actual results
in future periods to differ materially from forecasted results.
This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" has been amended and restated to give effect to the restatement of
our financial statements, as more fully described in Note 3 to our financial
statements entitled "Restatement of Financial Statements". For further detail
regarding the restatement, see "Explanatory Note" and "Item 9A. Controls and
Procedures."
36
Company Overview
Mobiquity Technologies, Inc. is a next-generation marketing and advertising
technology and data intelligence company which operates through our proprietary
software platforms in the programmatic advertising space.
Our product solutions are comprised of two proprietary software platforms:
· Our advertising technology operating system (or ATOS) platform; and
· Our data intelligence platform.
Our ATOS platform blends artificial intelligence (or AI) and machine learning
(ML) based optimization technology for automatic ad serving that manages digital
advertising inventory and campaigns. Our data intelligence platform provides
precise data and insights on consumer's real-world behavior and trends for use
in marketing and research.
We operate our business through two wholly-owned subsidiaries. Advangelists LLC
operates our ATOS platform business, and Mobiquity Networks, Inc. operates our
data intelligence platform business.
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 -On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers ("Topic 606"), to update the financial reporting
requirements for revenue recognition. Topic 606 outlines a single comprehensive
model for entities to use in accounting for revenue arising from contracts with
customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. The guidance is based on the principle that an
entity should recognize revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The guidance
also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs
incurred to fulfill a contract. This guidance became effective for the Company
beginning on January 1, 2018, and entities have the option of using either a
full retrospective or a modified retrospective approach for the adoption of the
new standard. The Company adopted this standard using the modified retrospective
approach on January 1, 2018.
In preparation for adoption of the standard, the Company evaluated each of the
five steps in Topic 606, which are as follows: (1) Identify the contract with
the customer; (2) Identify the performance obligations in the contract; (3)
Determine the transaction price; (4) Allocate the transaction price to the
performance obligations; and (5) Recognize revenue when (or as) performance
obligations are satisfied.
37
Reported revenue will not be affected materially in any period due to the
adoption of ASC Topic 606 because: (1) the Company expects to identify similar
performance obligations under Topic 606 as compared with deliverables and
separate units of account previously identified; (2) the Company has determined
the transaction price to be consistent; and (3) the Company records revenue at
the same point in time, upon delivery of services, under both ASC Topic 605 and
Topic 606, as applicable under the terms of the contract with the customer.
Additionally, the Company does not expect the accounting for fulfillment costs
or costs incurred to obtain a contract to be affected materially in any period
due to the adoption of Topic 606.
There are also certain considerations related to accounting policies, business
processes and internal control over financial reporting that are associated with
implementing Topic 606. The Company has evaluated its policies, processes, and
control framework for revenue recognition, and identified and implemented the
changes needed in response to the new guidance.
Lastly, disclosure requirements under the new guidance in Topic 606 have been
significantly expanded in comparison to the disclosure requirements under the
current guidance, including disclosures related to disaggregation of revenue
into appropriate categories, performance obligations, the judgments made in
revenue recognition determinations, adjustments to revenue which relate to
activities from previous quarters or years, any significant reversals of
revenue, and costs to obtain or fulfill contract.
The Company generates revenue from service contracts with certain customers.
These contracts are accounted for under the proportional performance method.
Under this method, revenue is recognized in proportion to the value provided to
the customer for each project as of each reporting date. We recognize revenues
in the period in which the data transmission is provided to the licensee.
Allowance for Doubtful Accounts
We are required to make judgments as to the realizability of our accounts
receivable. We make these assessments based on the following factors: (a)
historical experience, (b) customer concentrations, (c) 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.
Goodwill and Intangible Assets
Goodwill represents the future economic benefit arising from other assets
acquired that could not be individually identified and separately recognized.
The goodwill arising from the Company's acquisitions is attributable to the
value of the potential expanded market opportunity with new customers.
Intangible assets have either an identifiable or indefinite useful life.
Intangible assets with identifiable useful lives are amortized on a
straight-line basis over their economic or legal life, whichever is shorter. The
Company's amortizable intangible assets consist of customer relationships and
non-compete agreements. Their useful lives range from 1.5 to 10 years. The
Company's indefinite-lived intangible assets consist of trade names.
38
Goodwill and indefinite-lived assets are not amortized but are subject to annual
impairment testing unless circumstances dictate more frequent assessments. The
Company performs an annual impairment assessment for goodwill during the fourth
quarter of each year and more frequently whenever events or changes in
circumstances indicate that the fair value of the asset may be less than the
carrying amount. Goodwill impairment testing is a two-step process performed at
the reporting unit level. Step one compares the fair value of the reporting unit
to its carrying amount. The fair value of the reporting unit is determined by
considering both the income approach and market approaches. The fair values
calculated under the income approach and market approaches are weighted based on
circumstances surrounding the reporting unit. Under the income approach, the
Company determines fair value based on estimated future cash flows of the
reporting unit, which are discounted to the present value using discount factors
that consider the timing and risk of cash flows. For the discount rate, the
Company relies on the capital asset pricing model approach, which includes an
assessment of the risk-free interest rate, the rate of return from publicly
traded stocks, the Company's risk relative to the overall market, the Company's
size and industry and other Company specific risks. Other significant
assumptions used in the income approach include the terminal value, growth
rates, future capital expenditures and changes in future working capital
requirements. The market approaches use key multiples from guideline businesses
that are comparable and are traded on a public market. If the fair value of the
reporting unit is greater than its carrying amount, there is no impairment. If
the reporting unit's carrying amount exceeds its fair value, then the second
step must be completed to measure the amount of impairment, if any. Step two
calculates the implied fair value of goodwill by deducting the fair value of all
tangible and intangible net assets of the reporting unit from the fair value of
the reporting unit as calculated in step one. In this step, the fair value of
the reporting unit is allocated to all of the reporting unit's assets and
liabilities in a hypothetical purchase price allocation as if the reporting unit
had been acquired on that date. If the carrying amount of goodwill exceeds the
implied fair value of goodwill, an impairment loss is recognized in an amount
equal to the excess.
Determining the fair value of a reporting unit is judgmental in nature and
requires the use of significant estimates and assumptions, including revenue
growth rates, strategic plans and future market conditions, among others. There
can be no assurance that the Company's estimates and assumptions made for
purposes of the goodwill impairment testing will prove to be accurate
predictions of the future. Changes in assumptions and estimates could cause the
Company to perform impairment testing prior to scheduled annual impairment
tests.
The Company performed its annual fair value assessment at December 31, 2021,
there was a $3,600,000 impairment during the year. For the year ended December
31, 2020, there was a $4,000,000 impairment.
Plan of Operation
Mobiquity intends to hire several new sales and sales support individuals to
help generate additional revenue through the use of the Advangelists platform.
Mobiquity's sales team will focus on Advertising Agencies, Brands and publishers
to help increase both supply and demand across the Advangelists platform. The
Advangelists platform creates three revenue streams for Mobiquity. The first is
licensing the Advangelists platform as a white-label product for use by
Advertising Agencies, DSP's, Publishers and Brands. Under the White-Label
scenario, the user licenses the technology and is responsible for running its
own business operations and is billed a percentage of volume run through the
platform. The second revenue stream is a managed services model in which the
user is billed a higher percentage of revenue run through the platform, but all
services are managed by the Mobiquity/Advangelists team. The third revenue model
is a seat model, where the user is billed a percentage of revenue run through
the platform and business operations are shared between the user and the
Mobiquity/Advangelists team. The goal of the sales team is to inform potential
users of the benefits in efficiency and effectiveness of utilizing the
end-to-end, fully integrated ATOS created by Advangelists.
39
Results of Operations
Year Ended December 31, 2021, versus Year Ended December 31, 2020
The following table sets forth certain selected condensed statement of
operations data for the periods indicated in dollars. In addition, we note that
the period-to-period comparison may not be indicative of future performance.
Year Ended
December 31, December 31,
2021 2020
Revenue $ 2,672,615 $ 6,184,010
Cost of Revenues 1,954,383 4,360,645
Gross Profit 718,232 1,823,365
Operating Expenses 13,982,877 9,204,465
(Loss) from operations (13,264,645 ) (7,381,100 )
We generated revenues of $2,672,615 in 2021 as compared to $6,184,010 in the
same period for 2020, a change in revenues of $3,511,395. The nationwide
economic shutdown due to COVID-19 during 2021 severely reduced current
operations.
Cost of revenues was $1,954,383 or 71% of revenues in 2021 as compared to
$4,360,645 or 71% of revenues in the same fiscal period of fiscal 2020. Cost of
revenues include web services for storage of our data and web engineers who are
building and maintaining our platforms. Our ability to capture and store data
for sales does not translate to increased cost of sales.
Gross Profit was $718,232 or 27% of revenues for 2021 as compared to $1,823,365
in the same fiscal period of 2020 or 29% of revenues. When the country comes out
of COVID-19 and the economy begins to turn around we anticipate income to
increase.
Operating expenses were $13,982,877 for 2021 compared to $9,204,465 in the
comparable period of the prior year, an increase of $4,778,412. Increased
operating costs include cash and non-cash expenses for professional fees of
$1,141,848, non-cash operating costs also include stock and share-based
compensation of $6,168,367, and amortization of debt discount and issue costs of
$780,081.
The net loss from operations for 2021 was $13,264,645 as compared to $7,381,100
for the comparable period of the prior year, an increase of $5,883,545. The loss
from operations primarily includes stock-based compensation of $5,010,342, stock
issued for services of $1,158,025, bad debt expense of $434,390, amortization of
intangible assets of $800,735, amortization of debt discount/issue costs of
$780,081, warrants issued for interest expense of $320,188, and loss on
conversion of debt to common stock of $655,832. The continuing operating loss is
attributable to the focused effort in creating the infrastructure required to
move forward with our Mobiquity and Advangelists network business.
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 data collection and analysis including Advertising, Data Licensing,
Footfall Reporting, Attribution Reporting, Real Estate Planning, Financial
Forecasting and Custom Research services.
40
Liquidity and Capital Resources
We have a history of operating losses and our management has concluded that
factors raise substantial doubt about our ability to continue as a going concern
and our auditor has included an explanatory paragraph relating to our ability to
continue as a going concern in its audit report for the fiscal years ended
December 31, 2021, and 2020
We had cash and cash equivalents of $5,385,245 at December 31, 2021. Cash used
by operating activities for the year ended December 31, 2021, was $6,717,324.
This resulted from a net loss of $19,365,777, partially offset by non-cash
expenses, including depreciation and amortization of $808,300, stock-based
compensation of $5,010,342, stock issued for service of $1,158,025, warrants
issued for interest expense of $320,188 and impairment expense of $3,600,000.
For the year ended December 31, 2021, cash used in investing activities was
$6,472 related to the purchase of property and equipment.
Cash provided by financing activities of $11,506,860 was the result of issuance
of notes totaling $4,143,000 and repayments of notes totaling $2,840,337,as well
as stock and warrants issued for cash net of direct offering costs of
$10,204,197.
We had cash and cash equivalents of $602,182 at December 31, 2020. Cash used by
operating activities for the year ended December 31, 2020 was $4,716,739. This
primarily resulted from a net loss of $15,032,404, partially offset by non-cash
expenses, including depreciation and amortization of $1,807,007, stock-based
compensation of $1,347,048, warrant expense of $1,472,367 and impairment expense
of $4,000,000. Cash provided by financing activities of $485,033 was the result
of issuance of notes and cash payments on notes outstanding.
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 on equity financing and borrowings from
outside investors to supplement our cash flow from operations and expect this to
continue in 2022 and beyond until cash flow from our proximity marketing
operations become substantial.
Recent Financings
On October 19, 2021, the Company filed a Form S-1 Registration Statement (File
no. 333-260364) with the Securities and Exchange Commission to raise over $10
million dollars in an underwritten public offering. The next day the Company
filed an application to list our common stock on the NASDAQ Capital Market under
the symbol "MOBQ." This offering was completed on December 13, 2021, and the
Company retired the loans of Talos Victory Fund, LLC and Blue Lake Partners LLC
out of the gross proceeds it received of approximately $10.3 million. Also,
Talos Victory Fund, LLC and Blue Lake Partners, LLC converted all of their
warrants on a cashless basis into 24,692 common shares and 24,692 common shares,
respectively.
We have completed various other financings as described under the Notes to
Consolidated Financial Statements.
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K.
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