The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information that are included elsewhere in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward looking statements as a result of a number of factors, including those set forth under the cautionary note regarding "Forward Looking Statements" contained in Item 1.A - "Risk Factors".





Overview

Mobivity Holdings Corp. (the "Company" or "we") is in the business of developing and operating proprietary platforms over which brands and enterprises can conduct national and localized, data-driven marketing campaigns.

The Company's Recurrency platform enables multi-unit retailers to leverage the power of their own data to yield maximum customer spend, frequency and loyalty while achieving the highest ROMS possible. Our customers use Recurrency to:





  ? Transform messy POS data collected from thousands of points of sale into
    usable intelligence.


  ? Measure, predict, and boost guest frequency and spend by channel.


  ? Deploy and manage one-time use offer codes and attribute sales accurately
    across every channel, promotion and media program.


  ? Deliver 1:1 promotions and offers with customized mobile messaging,
    personalized receipt promotions and Integrated Loyalty programs.

Recurrency, delivered as a SaaS platform, is used by leading brands including Subway, Sonic Drive-In, Chick-fil-A, Checkers/Rally's and Circle K's across more than 40,000 retail locations globally.

We are living in a data-driven economy. By 2003 - when the concept of "big data" became common vernacular in marketing there was as much data being created every two days as had been created in all of time prior to 2003. Today, big data has grown at such a rate that 90% of the world's data has been created in the past two years. Unfortunately, despite there being so much data accumulated, only one percent of data is being utilized today by most businesses.

The challenge for multi-unit retailers isn't that they don't have enough data; in fact, national retailers are collecting millions of detailed transactions daily from thousands of points of sale around the world. The challenge is being able to make sense of this transaction data, which is riddled with data entry errors, collected by multiple POS systems and complicated by a taxonomy compiled by thousands of different franchisee owners. To normalize such an overwhelming amount of data into usable intelligence and then leverage it to optimize media investment and promotion strategy requires numerous teams of data analysts and data scientists that many retailers and restaurant operators simply don't have. Which is why so many technology and data companies, that can help solve these challenges, have been invested in and acquired by brands including, McDonald's, Starbucks and Yum Brands.

The Company's Recurrency platform fills this need with a self-service SaaS offering, enabling operators to intelligently optimize their promotions, media and marketing spend. Recurrency drives system-wide sales producing on average a 13% increase in guest spend and a 26% improvement in frequency, ultimately delivering an average ROMS of 10X. In other words, for every dollar invested in marketing, retailers using Recurrency to manage, optimize and deliver multi-channel consumer promotions generate an average of ten dollars in incremental revenue from their customers.





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Recent Events



Related Party Notes

During the year ended December 31, 2022, we issued to one of our directors, secured Notes in the principal aggregate amount of $5,173,125, which are due and payable two years after issuance. These Notes bear interest on the unpaid balance at the rate of fifteen percent (15%) per annum. The Company may prepay the advances and accrued interest, in whole or in part, without notice, penalty or charge. On November 19, 2021, a payment of $200,000 was paid toward the principal balance of the note. As of December 31, 2022, we have $5,173,125 as a remaining balance of these 2022 Notes and accrued interest of $387,918. A total of $151,398 of accrued interest was settled into 140,185 shares of common stock and the Company recorded a loss on debt settlement of interest payable $2,259. A total of $166,432 was accrued and recorded to equity payable of 154,106 shares of common stock and the Company recorded a loss on settlement of interest payable of $44,325.

On November 13, 2022, the Company entered into an amended and restated credit facility agreement with Thomas B. Akin, a director of the Company (the "A&R Credit Agreement") and a corresponding convertible note in the amount of $4,466,043 (the "Convertible Note"). The A&R Credit Agreement amends and restates the current Credit Agreement and allows for the Company to borrow up to $6 million in advances. The Convertible Note accrues interest monthly at 15% per annum. Principal and accrued interest payments are due in 24 monthly installments under the Convertible Note beginning on January 31, 2023 and continuing on the last day of each of the next 23 months thereafter. The Convertible Note and all accrued interest thereon are convertible into shares of our common stock, from time to time, at the option of the holder thereof, at a conversion price per share equal to 85% of the volume-weighted average price of our common stock quoted on the OTCQB ® Venture Market operated by OTC Markets Group Inc. over the thirty (30) trading days immediately preceding such date (the "Conversion Price"). The Convertible Note and all accrued interest thereon will be automatically converted into common stock at the Conversion Price on the dated that is five business days prior to the date on which the Company becomes listed on a national securities exchange if all listing requirements have been satisfied by the Company (other than the Company satisfying any stockholders' equity requirement to be listed on such national exchange).

During the year ended December 31, 2022, we issued to Talkot Capital LLC, unsecured Notes in the principal aggregate amount of $ 271,875, which are due and payable two years after issuance. These Notes bear interest on the unpaid balance at the rate of fifteen percent (15%) per annum. The Company may prepay the advances and accrued interest, in whole or in part, without notice, penalty or charge. As of December 31, 2022, we have $271,875 as a remaining balance of these 2022 Notes and accrued interest of $55,530. A total of $10,352 of accrued interest was converted into 9,585 shares of common stock and the Company recorded a loss on settlement of interest payable of $162. A total of $10,423 was accrued and recorded to equity payable of 9,651 shares of common stock and the Company recorded a loss on settlement of interest payable of $2,757.





2022 Warrant Exercises

On February 7, 2022, seventeen warrant holders exercised their common stock purchase warrant for 3,163,190 shares at the exercise price of $.80 per share, resulting in additional capital of $2,530,552. As an inducement for the holder's exercise of the warrants, we issued the holders 2,530,552 new warrants to purchase common stock at $1.50 per share over a three-year period expiring in February 2025.





2022 Private Placement

On August 24, 2022, Thomas Akin purchased 625,000 new warrants to purchase common stock at $1.50 per share over a three-year period expiring in August 2025, and 1,500,000 shares at the exercise price of $0.80 per share, resulting in additional capital of $1,200,000.

Results of Operations and Financial Conditions

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021





Revenues

Revenues consist primarily of a suite of products under the Recurrency platform. The Recurrency platform is comprised of POS Data Capture, Analytics, Offers and Promotions, Predictive Offers, Personalized Receipt Promotions, Customized Mobile Messaging, Belly Loyalty, and other revenues.





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Revenues for the twelve months ended December 31, 2022 were $7,533,912, a decrease of $640,972, or 7.8%, compared to $8,174,884 for the twelve months ended December 31, 2021. This decrease is primarily due to the decrease in special projects revenue.





Cost of Revenues

Cost of revenues consist primarily of cloud-based software licensing fees, short code maintenance expenses, personnel related expenses, and other expenses.

Cost of revenues for the twelve months ended December 31, 2022 was $5,328,483, an increase of $1,026,113, or 23.8%, compared to $4,302,370 for the twelve months ended December 31, 2021. This increase is primarily due to a one time increase in application costs that is currently under dispute and temporary guaranteed audience costs associated with increasing our key customer's messaging database.

The gross profit margin was 29% and 47% for the twelve months ended December 31, 2022 and 2021, respectively. Lower gross profit margin in 2022 is primarily due to the disputed application bill and the one-time audience building program costs.





Bad Debt

Bad Debt expense for the twelve months ended December 31, 2022 was $40,383, an decrease of $733,929, or 94.8%, compared to $774,312 for the twelve months ended December 31, 2021. This decrease is due primarily to the restructuring of a large current contract in that had 18 months of remaining ASC 606 deductions that were all recognized at the end of 2021.





General and Administrative

General and administrative expenses consist primarily of administrative salaries and personnel related expenses, legal fees, stock-based compensation expense, consulting costs and other expenses.

General and administrative expenses for the twelve months ended December 31, 2022 were $4,306,929, an increase of $722,208, or 20.1%, compared to $3,584,721 for the twelve months ended December 31, 2021. The increase in general and administrative expense was primarily due an increase in rent due to the end of the 50% abatement period, and an increase in insurance costs for 2022.

Sales and Marketing Expense

Sales and marketing expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, sales travel, consulting costs and other expenses.

Sales and marketing expenses for the twelve months ended December 31, 2022 were $2,616,596, a decrease of $1,385,969, or 34.6%, compared to $4,002,565 for the twelve months ended December 31, 2021. The decrease in 2022 was primarily due to a decrease of advertising and promotion expense of $383,807 and decrease in payroll related expenses of $916,754 compared to 2021.

Engineering, Research, and Development Expense

Engineering, research, and development expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, consulting costs and other expenses.

Engineering, research, and development expenses for the twelve months ended December 31, 2022, were $3,060,029, a decrease of $523,744 or 14.6%, compared to $3,583,773 for the twelve months ended December 31, 2021. The decrease in expense was primarily due to a decrease in payroll expense.

Depreciation and Amortization Expense

Depreciation and amortization expense consist of depreciation on our equipment and amortization of our intangible assets.

Depreciation and amortization expenses for the twelve months ended December 31, 2022, were $440,326 a decrease of $266,747, or 38%, compared to $707,073 for the twelve months ended December 31, 2021. This decrease is primarily attributable to the decrease in amortized assets due to impairment of Goodwill in 2021 and additional impairment of intangible assets during 2022.





Intangible Asset Impairment

Intangible Asset Impairment expenses for the twelve months ended December 31, 2022 were $552,476, an decrease of $544,190, compared to $8,286 for the twelve months ended December 31, 2021.





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Goodwill Impairment

Goodwill Impairment expenses for the twelve months ended December 31, 2022 were $411,183, an increase of $326,014, compared to $85,169 for the twelve months ended December 31, 2021. The increase is due to a reduction in expected cash flow for our current Belly products over the next five years.





Interest Income

Interest income consists of stated interest income on our cash balances.

Interest income for the twelve months ended December 31, 2022 was $0, compared to $5 for the twelve months ended December 31, 2021. This decrease of $5, related to lower earnings on cash positions held throughout the year as compared to the prior year.





Interest Expense

Interest expense consists of stated or implied interest expense on our notes payable, amortization of note discounts, and amortization of deferred financing costs.

Interest expense for the twelve months ended December 31, 2022 was $737,745, an increase of $469,799, or 175.3%, compared to $267,966 for the twelve months ended December 31, 2021. The increase is primarily attributable to the increased principal on short- and long-term borrowings during the year.

Loss on Disposal of Fixed Assets

Loss on disposal of fixed assets consists of an asset being disposed of for less than its carrying value.

Loss on disposal of fixed assets for the twelve months ended December 31, 2022 was $0, a decrease of $880 or 90%, compared $880 to the twelve months ended December 31, 2021. The decrease is due to reduced amount of assets that were disposed of during the year.





Settlement Losses

Settlement losses consist of legal settlement for TCPA settlements.

Settlement losses for the twelve months ended December 31, 2022 were $53,500, an increase of $53,500 or 100%, compared to $0 in the twelve months ended December 31, 2021. The increase is due to additional TCPA claims.





Extinguishment of Debt

The gain on extinguishment of debt for the twelve months ended December 31, 2022 was $0, a decrease of $891,103 or 100%, compared to $891,103 for the twelve months ending December 31, 2021. The decrease was due to full forgiveness of our Paycheck Protection Program loan in 2021.





Foreign Currency

The Company's financial results are impacted by volatility in the Canadian/U.S. Dollar exchange rate. The average U.S. Dollar exchange rate for the year ended December 31, 2022 and 2021 was $1 Canadian equals $0.77 and $0.79 U.S. Dollars, respectively. The Company's functional or measurement currency is the U.S. Dollar. Based on a U.S. Dollar functional currency, the following are the key areas impacted by foreign currency volatility:





  ? The Company sells products primarily in U.S. Dollars; therefore, reported
    revenues are not highly impacted by foreign currency volatility.


  ? A portion of the Company's expenses are incurred in Canadian Dollars and
    therefore fluctuate in U.S. Dollars as the U.S. Dollar varies. A weaker U.S.
    Dollar results in an increase in translated expenses, and a stronger U.S.
    Dollar results in a decrease.


  ? Changes in foreign currency rates also impact the translated value of the
    Company's working capital that is held in Canadian Dollars. Foreign exchange
    rate fluctuations result in foreign exchange gains or losses based upon
    movement in the translated value of Canadian working capital into U.S.
    Dollars.

The change in foreign currency was a gain of $2,119 and a loss of $8,661 for the years ended December 31, 2022 and 2021, respectively.





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Liquidity and Capital Resources

We have $362,835 of cash as of December 31, 2022. We had a net loss of $10 million for the year ended 2022, and we used $6.7 million of cash in our operating activities during 2022. We raised $2.6 million in cash from the exercise of warrants in February 2022 and we have raised $2.1 million in Private Placement funding in 2022. In addition, we raised $3.6 million in warrant conversion funding in the first quarter of 2023. Our additional cash from our warrant conversion along with our expected cash flow from operations, may not be sufficient to fund our 12-month plan of operations, and there can be no assurance that we will not require significant additional capital within 12 months.

If our cash reserves prove insufficient to sustain operations, we plan to raise additional capital by selling shares of capital stock or other equity or debt securities. In addition we currently have an additional $800,000 available on our current line of credit. We may need additional financing thereafter until we can achieve profitability. If we cannot, we will be forced to curtail our operations or possibly be forced to evaluate a sale or liquidation of our assets. Any future financing may involve substantial dilution to existing investors.

Although we are actively pursuing financing opportunities, we may not be able to raise cash on terms acceptable to us or at all. There can be no assurance that we will be successful in obtaining additional funding. Financings, if available, may be on terms that are dilutive to our shareholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price of our ordinary shares. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our ordinary shares. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations in the short term.





Cash Flows



                                                           For the Year Ended
                                                              December 31,
                                                          2022             2021
Net cash provided by (used in):
Operating activities                                  $ (6,688,551 )   $ (4,484,598 )
Investing activities                                       (30,269 )       (378,472 )
Financing activities                                    (6,456,410 )      2,364,722
Effect of foreign currency translation on cash flow        (46,274 )        (49,048 )
Net change in cash                                    $   (308,684 )   $ (2,547,396 )




Operating Activities

We incurred a net loss in operating activities totaling $6,688,551 in 2022 and $4,484,598 in 2021, respectively. The increase in net loss in operating activities in 2022 compared to 2021 was due primarily to the costs associated with the March 2022 warrant conversion, an increase in interest, intangible asset impairment and goodwill impairment.





Investing Activities

Investing activities during 2022 included $13,087 of capitalized software development costs and $17,182 of equipment purchases. Investing activities during 2021 included $299,253 of capitalized software development costs and $79,219 of equipment purchases.





Financing Activities

Financing activities for 2022 include net proceeds from conversion of common stock warrants of $2,550,552, proceeds from proceeds from PIPE funding of $2,050,000 and proceeds from related party notes payable of $1,895,000 offset by payments on notes payable of $39,142

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made, including those related to share-based compensation and valuation of the derivative liability. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.





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The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.





Income Taxes

We account for income taxes using the assets and liability method, which recognizes deferred tax assets and liabilities determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized. We recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained.

Revenue Recognition and Concentrations

Our Recurrency platform is a hosted solution. We generate revenue from licensing our software to clients in our software as a service model, per-message and per-minute transactional fees, and customized professional services. We recognize license/subscription fees over the period of the contract, service fees as the services are performed, and per-message or per-minute transaction revenue when the transaction takes place. Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We consider authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Some customers are billed on a month-to-month basis with no contractual term and are collected by credit card or electronic funds transfer. Revenue is recognized at the time that the services are rendered, and the selling price is fixed with a set range of plans. Cash received in advance of the performance of services is recorded as deferred revenue.

Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification 606 ("ASC 606"), is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance. The Company adopted this standard effective January 1, 2018, applying the modified retrospective method. Upon adoption, the Company discontinued revenue deferral under the sell-through model and commenced recording revenue upon delivery to distributors, net of estimated returns. Generally, the new standard results in earlier recognition of revenues.

We determine revenue recognition through the following steps:





  ? identification of the contract, or contracts, with a customer;


  ? identification of the performance obligations in the contract;


  ? determination of the transaction price;


  ? allocation of the transaction price to the performance obligations in the
    contract; and


  ? recognition of revenue when, or as, we satisfy a performance obligation.

During the years ended December 31, 2022 and 2021 two customers accounted for 51% and 73% of our revenues, respectively.

Share-based compensation expense

Share-based compensation cost is measured at the date of grant, based on the calculated fair value of the stock-based award, and is recognized as expense over the employee's requisite service period (generally the vesting period of the award). We estimate the fair value of employee stock options granted using the Black-Scholes Option Pricing Model. Key assumptions used to estimate the fair value of stock options include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term, the risk-free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our Company's common stock. We have elected to account for forfeitures as they occur to determine the amount of compensation cost to be recognized in each period.

Derivative Financial Instruments

We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.

We review the terms of the common stock, warrants and convertible debt we issue to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.





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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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