MobileSmith, Inc. (Form: 10-Q, Received: 08/14/2013 14:02:15)

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

____________________

(Mark One)

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

o Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-32634

____________________

(Exact name of registrant as specified in its charter)

____________________

(Former name, former address and former fiscal year, if changed since last report)

____________________

Delaware		95-4439334
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4505 Emperor Blvd., Ste. 320 Durham, North Carolina		27703
(Address of principal executive offices)		(Zip Code)

(Registrant's telephone number, including area code)

____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 5, 2013, there were 18,352,542 shares of the registrant's common stock, par value $0.001 per share, outstanding.

For the Quarterly Period Ended June 30, 2013

CONDENSED BALANCE SHEETS

	June 30,			December 31,
	2013			2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	132,487		$	58,458
Restricted cash		250,090			131,103
Accounts receivable, net		67,903			36,050
Prepaid expenses		76,006			96,670
Total current assets		526,486			322,281
Property and equipment, net		123,056			149,107
Capitalized software, net		725,680			618,557
Intangible assets, net		135,244			130,057
Other assets		15,370			19,440
Assets of discontinued operations		-			15,834
TOTAL ASSETS	$	1,525,836		$	1,255,276

LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable	$	92,188		$	217,174
Notes payable		5,018,476			5,041,741
Deferred revenue		111,943			82,308
Settlement related financial instrument liability		2,065,000			2,065,000
Accrued interest		275,035			221,404
Other accrued liabilities		330,925			148,936
Liabilities of discontinued operations		6,600			5,638
Total current liabilities		7,900,167			7,782,201
Long-term liabilities:
Notes payable-Related Party		14,557,051			14,557,051
Notes payable-Other		8,666,878			6,075,267
Deferred revenue		-			1,028
Total long-term liabilities		23,223,929			20,633,346
Total liabilities		31,124,096			28,415,547
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at		-			-
June 30, 2013 and December 31, 2012
Common stock, $0.001 par value, 45,000,000 shares authorized, 18,352,542 shares issued and		18,353			18,353
outstanding at June 30, 2013 and December 31, 2012
Additional paid-in capital		89,399,994			67,157,841
Accumulated deficit		(119,016,607	)		(94,336,465	)
Total stockholders' deficit		(29,598,260	)		(27,160,271	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,525,836		$	1,255,276

The accompanying notes are an integral part of these financial statements.

CONDENSED STATEMENTS OF OPERATIONS

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2013			2012			2013			2012

REVENUE	$	60,753		$	31,847		$	125,208		$	64,923

COST OF REVENUE		127,347			36,233			275,227			49,355

GROSS PROFIT (LOSS)		(66,594	)		(4,386	)		(150,019	)		15,568

OPERATING EXPENSES:
Sales and marketing		265,141			193,852			552,453			389,607
Research and development		222,386			17,222			390,216			33,260
General and administrative		346,528			300,486			764,509			541,350
Impairment of long lived assets		38,936			-			38,936			-
(Gain) on legal settlements		(5,235	)		-			(5,235	)		(100	)

Total operating expenses		867,756			511,560			1,740,879			964,117

LOSS FROM OPERATIONS		(934,350	)		(515,946	)		(1,890,898	)		(948,549	)

OTHER EXPENSE:
Interest expense, net		(509,360	)		(400,260	)		(981,698	)		(774,311	)
Loss on debt extinguishment		(21,793,055	)		-			(21,793,055	)
Change in market value of settlement related financial instrument		-			(162,250	)		-			(442,500	)

Total other expense		(22,302,415	)		(562,510	)		(22,774,753	)		(1,216,811	)

LOSS FROM CONTINUING OPERATIONS		(23,236,765	)		(1,078,456	)		(24,665,651	)		(2,165,360	)

DISCONTINUED OPERATIONS
Income (loss) from discontinued operations		(919	)		33,637			163			64,520
Impairment of assets of discontinued operations		(14,654	)		-			(14,654	)		-
NET LOSS	$	(23,252,338	)	$	(1,044,819	)	$	(24,680,142	)	$	(2,100,840	)

NET LOSS PER COMMON SHARE:
Basic and fully diluted – continuing operations	$	(1.27	)	$	(0.06	)	$	(1.34	)	$	(0.11	)
Basic and fully diluted – discontinued operations	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE:
Basic and fully diluted		18,352,542			18,352,542			18,352,542			18,352,542

The accompanying notes are an integral part of these financial statements.

CONDENSED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,			June 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(24,680,142	)	$	(2,100,840	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		72,394			39,640
Non cash amortization of debt discount		1,030
Equity-based compensation		24,098			17,303
Impairment of long lived assets		53,590			-
Loss on debt extinguishment		21,793,055			-
Changes in assets and liabilities:
Accounts receivable		(23,061	)		(21,147	)
Contracts receivable		(8,792	)		(10,250	)
Prepaid expenses		20,662			(78,584	)
Other assets		4,070			(4,334	)
Accounts payable		(124,986	)		172,388
Deferred revenue		29,570			51,958
Accrued and other expenses		235,620			370,133
Net cash used in operating activities		(2,602,892	)		(1,563,733	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(19,222	)		(18,613	)
Purchase of software license		-			(75,000	)
Capitalized patent development costs		(12,940	)		(14,072	)
Capitalized software		(164,244	)		(513,198	)
Net cash used in investing activities		(196,406	)		(620,883	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash used to pay IDB interest expense		83,899			101,692
Deposit of cash to IDB restricted account		(202,886	)		(281,247	)
Proceeds from debt borrowings		3,025,000			2,325,000
Repayments of debt borrowings		(32,686	)		(29,455	)
Net cash provided by financing activities		2,873,327			2,115,990

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		74,029			(68,626	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		58,458			165,139
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	132,487		$	96,513

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	927,058		$	748,778

The accompanying notes are an integral part of these financial statements

CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE PERIOD ENDED JUNE 30, 2013

	Common Stock				Additional
	Shares		$0.001 Par Value		Paid-In Capital		Accumulated Deficit			Totals

BALANCES, DECEMBER 31, 2012		18,352,542	$	18,353	$	67,157,841	$	(94,336,465	)	$	(27,160,271	)

Equity-based compensation						24,098					24,098
Beneficial conversion feature recorded as a result of June 27, 2013 debt modification						22,218,055					22,218,055
Net loss								(24,680,142	)		(24,680,142	)
BALANCES, JUNE 30, 2013		18,352,542	$	18,353	$	89,399,994	$	(119,016,607	)	$	(29,598,260	)

The accompanying notes are an integral part of these financial statements

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NOTES TO CONDENSED FINANCIAL STATEMENTS

For the Quarterly Period Ended June 30, 2013

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

MobileSmith, Inc. (formerly, Smart Online, Inc.) (the "Company") was incorporated in the State of Delaware in 1993. The Company changed its name to MobileSmith, Inc. effective July 1, 2013. The Company develops and markets software products and services tailored to users of mobile devices. The Company's flagship product is The MobileSmith™ Platform. The MobileSmith™ Platform is an innovative, patents pending mobile app development platform that enables organizations to rapidly create, deploy, and manage custom, native smartphone apps deliverable across iOS and Android mobile platforms.

The Company's principal products and services include:

	●	Licensing of our SaaS ("Software as a Service") Mobile App Development Platform to our customers who design and build their own apps;

	●	Custom mobile application design and development services provided by the Company;

	●	Mobile application marketing services;

	●	Mobile strategy implementation consulting; and

	●	Cloud-based software hosting and management services.

The Company prepared the accompanying unaudited Condensed Financial Statements pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In management's opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our financial position, results of operations and cash flows as of June 30, 2013. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as amended, on file with the SEC (our "Annual Report").

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the six-months ended June 30, 2013 and 2012, the Company incurred net losses as well as negative cash flows and had deficiencies in working capital. These factors indicate that the Company may be unable to continue as a going concern.

Certain prior year balances were reclassified in connection with the presentation of discontinued operations of legacy domain hosting operations and the presentation of debt balances as of June 30, 2013.

2. BALANCE SHEET ACCOUNTS

Capitalized software consists of the following:

	June 30, 2013			December 31, 2012

Capitalized software	$	829,307		$	672,359
Less accumulated amortization		(103,627	)		(53,802	)
Capitalized software, net	$	725,680		$	618,557

Financial instruments:

The fair value of the financial liability related to issuance of 1,475,000 shares of our common stock, par value $0.001 per share (the "Common Stock"), resulting from the settlement of the Class Action lawsuit on July 1, 2011 was $2,065,000 at both June 30, 2013 and December 31, 2012.

The fair value of the financial instrument is calculated by multiplying 1,470,000 of shares by the fair value of the Common Stock of $1.40. The Company uses inputs that are observable in the market. Such determination of value falls within Level I measurement methods under Fair Value Hierarchy under ASC 820 "Fair Value Measurements"

The Company recognized a loss in relation to the change in value of the financial liability of zero and $162,250 during the six-month periods ended June 30, 2013 and 2012, respectively.

The table below summarizes the Company’s debt at June 30, 2013 and December 31, 2012:

	June 30,			December 31,
Note Description	2013			2012		Maturity	Rate

IDB Bank		$	5,000,000	$	5,000,000	May-14		4.0	%
Insurance premium note			-		23,987	Jun-13		6.9	%
Capital lease obligations			141,375		150,072	Aug-19		8.0	%
Convertible notes - related parties			14,557,051		14,557,051	Nov-16		8.0	%
Convertible notes, net of discount			8,543,979		5,942,949	Nov-16		8.0	%

Total debt			28,242,405		25,674,059

Less: current portion of long term debt
Capital lease obligations			18,476		17,754
IDB Bank			5,000,000		5,000,000
Insurance premium note			-		23,987
Total current portion of long term debt			5,018,476		5,041,741
Debt - long term		$	23,223,929	$	20,632,318

On June 26, 2013, the Company entered into the Sixth Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement, Fourth Amendment to Convertible Secured Subordinated Promissory Notes and Fifth Amendment and Agreement to Join as a Party to Registration Rights Agreement (the "Sixth Amendment"), with the holders of a majority of the aggregate outstanding principal amount of the Convertible Secured Subordinated Promissory Notes (the "Notes"), issued by the Company under the Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007, as amended (as so amended, the "Note Purchase Agreement"), and an additional purchaser of the Notes, Grasford Investments Ltd. (together, the "Noteholders"). The modification to our convertible instrument applied to $23,075,000 of Notes outstanding as of the date of modification and to all future Notes. As amended by the Sixth Amendment, the convertible instrument has the following characteristics:

●

a maturity date of November 16, 2016;

●

an interest rate of 8% per year;

●

optional conversion at a Noteholders' request;

●

the borrowing commitment was increased by $10 million to $33.3 million;

●

a conversion price that is the greater of (i) 80% of the lowest closing price of the Common Stock in the twelve-month period immediately preceding the date of conversion or (ii) $0.50; and

●

if at the time any particular requested conversion the Company does not have the number of authorized shares of Common Stock sufficient to allow for such particular conversion, the Noteholders may request that the Company call a special meeting of the stockholders specifically for the purpose of increasing the number of the authorized shares of Common Stock to cover the remaining portion of the Notes outstanding.

The modification of the Note Purchase Agreement was accounted for as debt extinguishment. The total value of the convertible instrument immediately after the modification was determined to be $44,868,055, of which $21,793,055 was allocated to the intrinsic value of the embedded conversion feature of the instrument immediately after the modification (beneficial conversion feature) in accordance with ASC 470 “Debt” and recorded as part of additional paid-in capital.

The difference between the fair value of the new convertible instrument and the carrying value of the old convertible notes in the amount of $21,793,055 was recognized as loss on extinguishment of debt in the statement of operations.

On June 27, 2013, the Company sold $450,000 in Notes to Union Bancaire Privée ("UPB") under the amended Note Purchase Agreement at a conversion price of $0.72 on the date of sale. The Company recorded a beneficial conversion feature of $425,000 and corresponding debt discount, which will be amortized into interest expense through the maturity of the Note.

During the six-month period ended June 30, 2013, the Company sold Notes to UBP totaling $3,025,000 (including the $450,000 described above) under the same terms as previously-sold Notes under the convertible instrument.

Fair Value of Modified Convertible Notes

The modified convertible debt instrument was recorded at fair value of $44,868,055. The Company used a binomial model to determine the fair value of the instrument. The binomial model method uses significant unobservable inputs and falls within Level III measurement method under Fair Value Hierarchy under ASC 820 "Fair Value Measurements"

The significant unobservable inputs and information used to develop those inputs include the following:

●

volatility of stock price was determined to be 47% and was based on the volatility of the Company's stock price as quoted on the Over-the-Counter Bulletin Board (the "OTCBB") for the period of 3.4 years, which approximates the period remaining until maturity of the convertible instrument;

●

the risk free rate of 1.41%;

●

the credit spread over the risk free rate was determined to be approximately 20%, which was derived from a combination of the credit spread of CCC rated bonds with added premium for lack of marketability of the convertible instrument;

●

the nodes of the binomial model were extended for 3 years, which approximates time period until maturity of the convertible instrument; and

●

the conversion ratio varied from approximately 1.39 to .56 shares per dollar, depending on the node of the conversion tree. The conversion ratio varied due to projected change in value of the stock driven by historical volatility of 47%.

On June 28, 2013, the Company extended its secured credit facility (the "IDB Credit Facility"), with Israel Discount Bank of New York ("IDB"), as lender, effective as of May 31, 2013, for an additional one-year period for the $5,000,000 already outstanding, and we deposited additional $203,000 in a Restricted Cash Account held at IDB for future interest payments to increase the balance to the required $250,000. All other terms remained unchanged. To date, the Company has borrowed $5,000,000 under the IDB Credit Facility. Borrowings under the IDB Credit Facility are guaranteed by Atlas Capital SA ("Atlas"), a majority Noteholder and a related party, and further secured by an extended irrevocable standby letter of credit issued by UBS Private Bank ("UBS") with an expiration date of November 30, 2015.

4. COMMITMENTS AND CONTINGENCIES

Aggregate future lease commitments

The Company leases computers, office equipment and office furniture under capital lease agreements that expire through August 2019. Total amounts financed under these capital leases were $141,375 and $150,072 at June 30, 2013 and December 31, 2012, respectively. These obligations are included within the Company's total debt.

The Company rents its office space pursuant to a lease that expires on November 15, 2013. Current monthly rent is $15,780. The Company is currently evaluating lease renewal and relocation options.

The Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, certain pending patent and privacy matters, including class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings.

The Company will record a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company's judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss in excess of the amount accrued, and such amounts could be material.

On June 18, 2010, the Company entered into a Stipulation and Agreement of Settlement (the "Stipulation") with the lead plaintiff in the securities class action involving the Company in the case captioned Mary Jane Beauregard vs. Smart Online, Inc., et al. , filed in the District Court (the "Class Action"). The Stipulation provides for the settlement of the Class Action on the terms described below. The District Court issued an order preliminarily approving the settlement on January 13, 2011. The final settlement hearing was held on May 11, 2011. As of the date of this report, the 1,475,000 shares of Common Stock had not been issued and, according to GAAP, the Company now carries the obligation as a financial instrument on its balance sheet.

The Stipulation provides for the certification of a class consisting of all persons who purchased the Company's publicly traded securities between May 2, 2005 and September 28, 2007, inclusive. As per the terms of the Stipulation, the settlement class has received total consideration of a cash payment of $350,000 made by the Company, and a cash payment of $112,500 made by Maxim Group. In addition, Henry Nouri is required to transfer 25,000 shares of Company Common Stock to the settlement class and the Company is required to issue 1,475,000 shares of Company Common Stock to the class. Under the terms of the Stipulation, counsel for the settlement class may sell some or all of the Common Stock received in the settlement before distribution to the class, subject to the limitation that it cannot sell more than 10,000 shares in one day or 50,000 shares in 30 calendar days. Subject to the terms of the Stipulation, we paid the lead plaintiff $75,000 on July 14, 2010, $100,000 on September 15, 2010, $100,000 on December 14, 2010 and $75,000 on March 14, 2011. On July 1, 2011, the District Court issued the Final Judgment and Order of Partial Dismissal with Prejudice in the Class Action case. The Court approved the Stipulation and directed the terms of how the Stipulation should be consummated . On July 1, 2011, we recorded the Class Action obligation as a financial instrument liability.

On January 13, 2011 (the "Effective Date"), the District Court issued the Order Preliminarily Approving Settlement and Providing Notice. Based upon the Settlement Agreement and the January 13, 2011 District Court Order Preliminarily Approving Settlement and Providing Notice, we paid for the benefit of the Dennis Michael Nouri, Reza Eric Nouri, Henry Nouri and Ronna Loprete Nouri, collectively, the Nouri Parties, a total of $1,332,773 between January 2011 and February 2012. The Company was ordered by a court of proper jurisdiction to withhold $67,227 for future payment of adjudicated debt owed by the Nouri Parties'. Under the terms of the Settlement Agreement, to the extent the Nouri Parties' legal costs are less than $300,000, the Company is owed the difference. The Settlement Agreement also provides for the exchange of mutual releases by the parties.

5. EQUITY COMPENSATION

The following is a summary of the stock option activity for the three-months ended June 30, 2013:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic value
Outstanding, December 31, 2012		450,900		$	2.02
Cancelled		(19,900	)		1.08
Issued		18,000			1.40
Outstanding, June 30, 2013		449,000		$	2.03		6.9		46,700
Vested and exercisable, June 30, 2013		280,500		$	2.42		5.8		36,800

Aggregate intrinsic value represents the difference between the closing stock price at June 30, 2013 of the Company's Common Stock and the exercise price of outstanding, in-the-money options. The Company's closing stock price as reported on the OTCBB as of June 30, 2013 was $1.40.

At June 30, 2013, there remains $144,018 of unvested expense yet to be recorded related to all options outstanding.

6. MAJOR CUSTOMERS AND CONCENTRATION

During the six-month period ended June 30, 2013, two major customers accounted for 26% of total revenues. For the six-month period ended June 30, 2012, five major customers accounted for 75% of total revenues.

7. DISCONTINUED OPERATIONS

In May 2013, the Company's management agreed to discontinue the Company's legacy business of domain hosting and e-commerce effective as of July 31, 2013. Results of legacy operations are presented as discontinued operations in the Condensed Statements of Operations. The Company has impaired all remaining assets associated with the legacy business, which included a number of servers, and recorded an impairment charge in the amount of approximately $15,000. Remaining liabilities of $6,600 include deferred revenue for the recently renewed subscriptions.

8. SUBSEQUENT EVENTS

Subsequent to June 30, 2013, we sold three Notes totaling $890,000 to UBP on the same terms as previously sold Notes. The Notes will mature on November 14, 2016.

On July 29, 2013, the Company signed a sixty-five month lease for a new office space in Raleigh, North Carolina with the expected commencement date of December 1, 2013. The new office is approximately 7,300 square feet. The new monthly rental payments start with approximately $13,000 per month and escalate over the term of the lease.

Information set forth in this Quarterly Report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act and other laws. Forward-looking statements consist of, among other things, trend analyses, statements regarding future events, future financial performance, our plan to build our business and the related expenses, our anticipated growth, trends in our business, the effect of interest rate fluctuations on our business, the potential impact of current or future litigation and government investigations, the potential availability of tax assets in the future and related matters, the expected decline in revenues from the termination of contracts, obtaining security clearance and meeting the compliance requirements necessary to be a qualified vendor for the U.S. government, and the sufficiency of our capital resources including funds available under our existing credit facility, the intention to increase the funds available under our Note facility and the future sales of Notes, all of which are based on current expectations, estimates, and forecasts, and the beliefs and assumptions of our management. Words such as "expect," "anticipate," "project," "intend," "plan," "estimate," variations of such words, and similar expressions also are intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified under Part I, Item 1A, "Risk Factors," in our Annual Report and our subsequent periodic reports filed with the Securities and Exchange Commission, or SEC, for factors that may cause actual results to be different than those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The following discussion is designed to provide a better understanding of our unaudited financial statements, including a brief discussion of our business and products, key factors that impacted our performance, and a summary of our operating results. The following discussion should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods.

We develop and market enterprise software products and services tailored to users of mobile devices. Our flagship product is our MobileSmith™ Platform, which allows our enterprise customers to quickly design, build and manage native iOS and Android apps without having programmer skills or experience. We use a SaaS business model – the customers acquire access to our platform through user license agreements and are able to obtain total control of mobile app production. Our business model allows for the rapid creation, deployment and full life cycle management of an unlimited number of native apps by our customers for a flat monthly license fee.

In addition, MobileSmith Consulting offers a portfolio of services to our clients to help them “Go Mobile.” We share our deep expertise in mobile design best practices in areas like user interface and user experience, brand engagement, app design, graphical design and mobile enterprise workflow and integration.

Our platform brings enterprise mobile app development into the mainstream. Currently, multinational enterprises are struggling to move past the pilot phase in mobile due to the high costs and long times to market for a single app. Additional challenges arise when enterprises try to quickly syndicate that single app worldwide and customize that app with regional specific branding, content, language and advertising. Our platform has an ability to replicate a single app multiple times and, through built-in user authentication mechanisms, allows designated groups within the organization to locally customize, “skin” the apps for the targeted user experience and allows for customized local content management of every app.

Our market penetration strategy focuses on three distinct sectors:

We believe that our platform has a unique capability to service various structures within federal, state and local governments, as government structure is highly segmented by function and territory. In addition, our platform can be safely placed behind the firewalls of individual departments, where data security is a primary concern. Replicating our platform and placing it behind a secure firewall would allow an organization to create and manage multiple mobile apps with targeted functionality for targeted audiences without going outside of the secure firewall.

Healthcare organizations, such as hospitals and healthcare networks are akin to government in their departmental segmentation and territorial reach. We believe that our platform has a significant competitive advantage in the healthcare space due to the ability to deliver a variety of targeted mobile solutions cost effectively.

The third sector combines all other enterprise clients, where large scale customization based on functionality or territory is of the highest value. These target clients may range from mortgage brokers and real estate franchises to media outlets.

Continuous Upgrades of our MobileSmith™ Platform

During the six-month period ended June 30, 2013, we invested approximately $196,406 in equipment, upgrades to the functionality of its software platform and development of its patents. The main upgrades to the platform included:

●

Release of MobileSmith™ 3.0 platform, which includes improvements to the user interface and streamlined workflow;

●

Completion of iPad AppCanvas™.3. With this release our platform can produce native iPad apps with the same ease and agility, as the iPhone and Android phone apps. Tablets are currently driving mobile app usage and MobileSmith™ became one of the first SaaS app platforms to accommodate this trend; and

●

Introduction of Enterprise App Versioning (EAV), which allows for a more structured ways of app version development and release to internal and public app stores. EAV also allows managing of multiple live app versions without forcing users to download a new version of an app.

Discontinued Operations of Domain Management and E-Commerce Business.

During the three months ended June 30, 2013, we adopted a plan to completely discontinue our domain hosting and e-commerce operations in order to focus on our core mobile platform business and related services. Such operations were gradually on the decline over the past two years. We do not expect our exit to have any substantial impact on our operations and cash flows. We recorded a loss on impairment of assets used in discontinued operations of approximately $15,000 for the three months ended June 30, 2013. The assets included a number of servers and switches that were used for domain hosting operations.

Liquidity and Capital Resources

We have not yet achieved positive cash flows from operations, and our main source of funds for our operations is the sale of additional Notes. We must continue to rely on this source until we are able to generate sufficient cash from revenues to fund our operations. We believe that anticipated cash flows from operations, and additional issuances of Notes, together with cash on hand, will provide sufficient funds to finance our operations at least for the next 12 to 18 months, depending on our ability to achieve strategic goals outlined in our annual operating budget approved by our board of directors, or the Board. Changes in our operating plans, lower than anticipated sales, increased expenses, or other events may cause us to seek additional equity or debt financing in future periods. There can be no guarantee that financing will be available on acceptable terms or at all. Additional equity and convertible debt financing could be dilutive to the holders of our Common Stock, and additional debt financing, if available, could impose greater cash payment obligations and more covenants and operating restrictions. The distribution of the Class Action settlement shares will cause current stockholders to be further diluted due to the issuance of an additional 1,475,000 shares of Common Stock pursuant to the terms of the agreement.

On June 26, 2013, we entered into the Sixth Amendment with the Noteholders. The debt modification affected both currently outstanding convertible debt and issuances made subsequently. The modification was a condition for which the parties to the Note Purchase Agreement would agree to increase the ceiling for the amount of Notes authorized to be issued. As a result of the modification, the Noteholders agreed to increase the amount of Notes authorized to be issued in subsequent closings of the sale of Notes by $10,000,000, from $23,300,000 to $33,300,000. The commitment is non-binding. As of August 7, 2013, we had $8,685,000 available under the convertible instrument.

The modification resulted in a significant reduction in the conversion price on all outstanding and future Notes issued under the Note Purchase Agreement. Immediately after the modification, the holders of $23,075,000 of Notes were allowed to convert at a 20% discount to the lowest price of the our Common Stock during the previous twelve-month period as quoted on the OTCBB or, $0.72, into 32,048,611 shares, which resulted in significant additional value from modification of the conversion option of $21,793,055 for the holders of the Notes , and a significant potential dilution of our current stockholders. However, it is unlikely that this value can be realized by the holders of the Notes, if converted, due to fact that our stock is thinly traded.

During the three-month period ended June 30, 2013, we sold eight Notes to UBP totaling $1,765,000 under the same terms as previously-sold Notes under the convertible instrument.

During the three-month period ended June 30, 2013, we used in operations approximately $1,409,244, of which $481,847 or 34% was used to pay interest on our outstanding convertible debt.

During the six-month period ended June 30, 2013, we sold eight Notes to UBP totaling $3,025,000, under the same terms as previously-sold Notes under the convertible instrument.

During the six-month period ended June 30, 2013, we used in operations approximately $2,602,892, of which $927,058 or 36% was used to pay interest on our outstanding convertible debt.

Our unrestricted cash on hand was $132,487 at June 30, 2013, compared to $58,458 at December 31, 2012. When compared to December 31, 2012, our accumulated deficit increased by the amount of our six-month loss of $24,680,142 and was $119,016,607 at June 30, 2013. Included in the net loss for the period was $21,793,055 of loss on modification of debt, which was accounted for as a debt extinguishment.

Under the IDB Credit Facility, we borrowed $5,000,000. The terms of the IDB Note called for the repayment of the principal amount on May 31, 2013. On June 28, 2013, we extended our IDB Credit Facility, effective as of May 31, 2013, or an additional one-year period for the $5,000,000 already outstanding, and we deposited $203,000 in a Restricted Cash Account held at IDB for future interest payments to increase the balance to the required $250,000. All other terms remain the same. Borrowings under the IDB Credit Facility are guaranteed by Atlas, a majority Noteholder and a related party, and further secured by an extended irrevocable standby letter of credit issued by UBS with expiration date of November 30, 2015.

Further information concerning the Notes and the IDB Credit Facility is reported in Note 3 to the Financial Statements above.

Our independent registered public accounting firm has issued an emphasis-of-matter paragraph in their report included in our Annual Report in which they express substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern depends on our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing that is currently required, and ultimately to attain profitable operations and positive cash flows. There can be no assurance that our efforts to raise capital or increase revenue will be successful. If our efforts are unsuccessful, we may have to cease operations and liquidate our business.

Results of Continuing Operations for the Three-Months Ended June 30, 2013 and June 30, 2012

During the three-month period ended June 30, 2013, we continued revenue growth associated with the licensing of its MobileSmith™ platform and related service revenue.

During the three-month period ended June 30, 2013, our total revenue increased to $60,753, from $31,847 for the comparable period in the prior year, or 91%.

During the three-month period ended June 30, 2013, cost of revenue increased to $127,347, from $36,233 for the three-month period ended June 30, 2012, or an increase of approximately $91,000. The increase is mostly attributable to the following changes:

●

the cost of developers servicing the platform and its components was approximately $11,000 compared to approximately $2,000 during the same period of last year;

●

the cost of professional services that include consulting and training amounted to approximately $52,000, compared to zero during the same period of last year;

●

the amortization of capitalized software included in cost of revenue was approximately $26,000 compared to $18,000 for the same period of last year; and

●

outsourced hosting fees associated with the MobileSmith™ platform were approximately $16,000 compared to $10,000 during the same period of last year.

During the three-month period ended June 30, 2013, sales and marketing expenses increased from $193,852 for the three-month period ended June 30, 2012, to $265,141, or 37%. The increase is attributable mostly to:

●

addition of two more employees to our sales and marketing force focused on the sale of our MobileSmith™ platform services, which resulted in an increase in payroll costs of approximately $32,000;

●

an increased presence at tradeshows, which resulted in an increase in related expenses of approximately $7,000;

●

an increase in costs associated with advertising and promotion of our platform of approximately $14,000; and

●

increase in stock based compensation of approximately $4,000.

Research and Development

During the three-month period ended June 30, 2013, research and development expenses increased from $17,222 for the three-month period ended June 30, 2012, to $222,386. Research and development expenses fluctuate, based on the stage of development and functionality of the platform and various app blocks. During the three-month period ended June 30, 2012, significant costs associated with our platform were capitalized, as the core of our MobileSmith™ platform was being enhanced. During the three-month period ended June 30, 2013, the development efforts were focused on new individual app blocks, which individually require separate research and development activities. As such, a higher proportion of developer’s costs are related to the design as opposed to the production of the individual app blocks. Our software capitalization criteria are described in further detail in our Annual Report.

General and Administrative

During the three-month period ended June 30, 2013, our general and administrative expenses increased from $300,486 for the three-month period ended June 30, 2012, to $346,528 or 15%. The increase is predominantly attributable to:

●

increase in the cost of legal services associated with extension of the IDB Credit Facility by $22,000 in comparison to the similar extension last year;

●

increase of $26,000 in executive compensation; and

●

the office rent was approximately $47,000 compared to $40,000 during the same period of last year as the rent increased on October 1, 2012 pursuant to the lease.

Results of Continuing Operations for the Six-Months Ended June 30, 2013 and June 30, 2012

During the six-month period ended June 30, 2013, our total revenue increased from $64,923 for the six-month period ended June 30, 2012, to $125,208, or 93%, as we continued revenue growth associated with licensing of its MobileSmith™ platform and related service revenue.

During the six-month period ended June 30, 2013, cost of revenue increased from $49,355 for the six-month period ended June 30, 2012 to $275,227 when compared to the same period last year, and increase of approximately $225,872.

The increase is mostly attributable to the following:

●

the cost of developers servicing the platform and its components was approximately $54,000 compared to approximately $7,000 during the same period of last year;

●

the cost of professional services that include consulting and training amounted to approximately $107,000, compared to zero during the same period of last year;

●

the amortization of capitalized software included in cost of revenue was approximately $50,000 compared to $22,000 for the same period of last year; and

●

outsourced hosting fees associated with the MobileSmith™ platform were approximately $32,000 compared to $11,000 during the same period of last year.

During the six-month period ended June 30, 2013, sales and marketing expenses increased from $389,607 for the six-month period ended June 30, 2012, to $552,453, or 42%. The increase is attributable mostly to:

●

addition of two more employees to our sales and marketing force focused on the sale and promotion of our MobileSmith™ platform services, which resulted in an increase in payroll costs of approximately $79,000;

●

an increased presence at tradeshows, which resulted in an increase in related expenses of approximately $29,000;

●

an increase in costs associated with advertising and promotion of the our platform of approximately $25,000;

●

an increase in commission expense of approximately $5,000 related to an increase in sales of our platform licenses and related services; and

●

an increase in sales team travel expense of approximately $7,000.

Research and Development

During the six-month period ended June 30, 2013, research and development expenses increased from $33,260 for the six-month period ended June 30, 2012, to $390,216. Research and development expenses fluctuate, based on the stage of development and functionality of the platform and various app blocks. During the six-month period ended June 30, 2012, significant costs associated with our platform were capitalized, as the core of our MobileSmith™ platform was being enhanced. During the six-month period ended June 30, 2013, the development efforts were focused on new individual app blocks, which individually require separate research and development activities. As such, a higher proportion of developer’s costs are related to the design as opposed to the production of the individual app blocks. Our software capitalization criteria are described in detail in our Annual Report.

General and Administrative

During the six-month period ended June 30, 2013, our general and administrative expenses increased from $541,350 for the six-month period ended June 30, 2012, to $764,509 or 41%. The increase is predominantly attributable to the following:

●

additional legal, consulting and other professional fees resulting from the compromise of our internal corporate network in June 2012. During the six-month period ended June 30, 2013, we continued to incur such expenses, which totaled approximately $73,000;

●

increase in the cost of legal services associated with extension of the IDB Credit Facility by $22,000 in comparison to the similar extension last year;

●

increase of $57,000 in executive compensation;

●

$10,000 increase in consulting expenses; and

●

an absence of a $30,000 gain related to the recovery of receivable balance previously written off. This balance was included in general and administrative expense for the six month period ended June 30, 2012.

Our management, with the participation of our Chief Executive Officer has evaluated the effectiveness of our disclosure controls and procedures for the three month period ended June 30, 2013. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2013, our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the three months ended June 30, 2013 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

The following exhibits are being filed or furnished herewith and are numbered in accordance with Item 601 of Regulation S-K:

Exhibit No.		Description

3.1		Composite Copy of Amended and Restated Certificate of Incorporation, dated January 4, 2005, as amended to date ( Filed herewith )

3.2		Composite Copy of Amended and Restated Certificate of Incorporation, dated January 4, 2005, as amended to date (marked copy) ( Filed herewith )

3.3		Seventh Amended and Restated Bylaws, effective July [1], 2013 ( Filed herewith )

3.4		Seventh Amended and Restated Bylaws, effective July [1], 2013 (marked copy) ( Filed herewith )

10.1		Sixth Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement, Fourth Amendment to Convertible Secured Subordinated Promissory Notes and Fifth Amendment and Agreement to Join as a Party to Registration Rights Agreement, dated June 26, 2013, by and among Smart Online, Inc., Grasford Investments Ltd., Atlas Capital S.A. and Crystal Management Ltd. (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on July 2, 2013)

10.2		Promissory Note dated June 6, 2013, made by Smart Online, Inc. for the benefit of Israel Discount Bank of New York, as lender (incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on July 2, 2013)

10.3		Guaranty dated June 6, 2013, made by Atlas Capital, SA for the benefit of Israel Discount Bank of New York (incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed with the SEC on July 2, 2013)

10.4		Professional Services Agreement, effective as of May 1, 2013, by and between Smart Online, Inc. and Entre-Strat Consulting, LLC (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (Filed herewith)

31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) ( Filed herewith )

31.2		Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) ( Filed herewith )

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 ( Furnished herewith )

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 ( Furnished herewith )

101.1		The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Cash Flows, (iv) the Statement of Stockholders’ Deficit, and (v) related notes to these financial statements, tagged as blocks of text and in detail ( Filed herewith )

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MOBILESMITH, INC.


	By:	/s/ Amir Elbaz
August 14, 2013		Amir Elbaz
		Chief Executive Officer


	By:	/s/ Gleb Mikhailov
August 14, 2013		Gleb Mikhailov
		Chief Financial Officer

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

MOBILESMITH, INC.

This Amended and Restated Certificate of Incorporation of MobileSmith, Inc., a Delaware corporation originally incorporated as the American Institute for Financial Research, Inc. (the “Corporation”) restates, integrates and further amends the provisions of the Corporation’s Certificate of Incorporation as originally filed on August 10, 1993, as amended and restated on August 10, 1999, and as heretofore amended and supplemented. This Amended and Restated Certificate of Incorporation was duly approved by the written consent of the holders of a majority of the Corporation’s issued and outstanding shares of stock in accordance with Section 228 of the General Corporation Law of the State of Delaware and duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.

ARTICLE I

The name of the Corporation is MobileSmith, Inc.

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware is the Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of the registered agent of the Corporation is The Corporation Trust Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

A. The Corporation is authorized to issue two classes of stock to be designated, respectively, Preferred Stock (“Preferred Stock”) and Common Stock (“Common Stock”). The total number of shares of capital stock that the Corporation shall have authority to issue is fifty million (50,000,000). The total number of shares of Preferred Stock the Corporation shall have the authority to issue is five million (5,000,000). The total number of shares of Common Stock the Corporation shall have the authority to issue is forty-five million (45,000,000). The Preferred Stock shall have a par value of $0.001 per share and the Common Stock shall have a par value of $0.001 per share.

B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation (the “Board”) is hereby authorized to provide for the issue of all or any of the shares of Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional, or other rights, and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board providing for the issue of such shares and as may be permitted by the General Corporation Law of the State of Delaware. The Board is also hereby authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to de issue of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

ARTICLE V

A. The business of the Corporation shall be managed by its Board of Directors, the election of the members of which Board need not be by written ballot.

B. The Board of Directors is authorized to adopt, amend, or repeal Bylaws of the Corporation except as and to the extent provided in such Bylaws.

C. To the fullest extent permitted under current law or future amendments to the law, no director of the Corporation shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. As used herein, the term “improper personal benefit” does not include a director’s reasonable compensation or other reasonable incidental benefit for or on account of his or her service as director, officer, employee, independent contractor, attorney, or consultant of the Corporation. Any repeal or modification of this section shall be prospective and shall not affect the rights under this section in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. Further, notwithstanding the foregoing provision, in the event that the General Corporation Law of Delaware is amended or enacted to permit further limitation of the personal liability of a director, the personal liability of the Corporation’s directors shall be limited or eliminated to the fullest extent permitted by applicable law. In addition, this provision shall not affect any provision permitted under the General Corporation Law of Delaware in the Certificate of Incorporation, bylaws or contract or resolution of the Corporation indemnifying or agreeing to indemnify a director against personal liability.

ARTICLE VI

Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them., any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under Section 291 of the Delaware General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under Section 279 of the Delaware General Corporation Law order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

SMART ONLINE MOBILESMITH, INC.

This Amended and Restated Certificate of Incorporation of Smart Online MobileSmith, Inc., a Delaware corporation originally incorporated as the American Institute for Financial Research, Inc. (the “Corporation”) restates, integrates and further amends the provisions of the Corporation’s Certificate of Incorporation as originally filed on August 10, 1993, as amended and restated on August 10, 1999, and as heretofore amended and supplemented. This Amended and Restated Certificate of Incorporation was duly approved by the written consent of the holders of a majority of the Corporation’s issued and outstanding shares of stock in accordance with Section 228 of the General Corporation Law of the State of Delaware and duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.

ARTICLE I

The name of the Corporation is Smart Online MobileSmith, Inc.

ARTICLE II

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

ARTICLE V

A. The business of the Corporation shall be managed by its Board of Directors, the election of the members of which Board need not be by written ballot.

B. The Board of Directors is authorized to adopt, amend, or repeal Bylaws of the Corporation except as and to the extent provided in such Bylaws.

ARTICLE VI

SEVENTH AMENDED AND RESTATED

BYLAWS

MOBILESMITH, INC.

ARTICLE I

OFFICES

SECTION 1. Registered Office . The registered office of the Corporation shall be located at 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or at such other place as the Board of Directors shall determine from time to time.

SECTION 2. PRINCIPAL OFFICE AND OTHER OFFICES . The principal office of the Corporation shall be located at such place as the Board of Directors may specify from time to time. The Corporation may have such other offices at such other places, either within or without the State of Delaware, as the Board of Directors may from time to time determine, or as the affairs of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1. PLACE OF MEETING . Meetings of the stockholders of the Corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the principal office of the Corporation required to be maintained pursuant to Article I, Section 2 hereof. The Board of Directors may, in its sole discretion and subject to such guidelines and procedures as the Board of Directors may adopt for such meeting, permit stockholders and proxy holders not present at such meeting to: (i) participate in such meeting of stockholders; and (ii) be deemed present in person and vote at such meeting of stockholders, provided that: (A) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder; (B) the Corporation shall implement reasonable measures to provide stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders; and (C) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, the Corporation shall maintain a record of such vote or other action.

SECTION 2. ANNUAL MEETINGS . The annual meeting of the stockholders shall be held during the month of June of each year at such time and place as the Board of Directors shall determine, at which time the stockholders shall elect a Board of Directors and transact such other business as may be properly brought before the meeting. Notwithstanding the foregoing, the Board of Directors may cause the annual meeting of stockholders to be held on such other date in any year as they shall determine to be in the best interest of the Corporation, and any business transacted at said meeting shall have the same validity as if transacted on the date designated herein.

SECTION 3. SPECIAL MEETINGS . Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or the Certificate of Incorporation, may be called by the Chairman of the Board, Chief Executive Officer or President. The President or Secretary shall call a special meeting when: (i) requested in writing by any two or more of the directors, or one director if only one director is then in office; or (ii) requested in writing by stockholders owning a majority of the shares entitled to vote. Such written request shall state the purpose or purposes of the proposed meeting.

SECTION 4. NOTICE OF MEETINGS . Except as otherwise required by statute or the Certificate of Incorporation, written notice of each meeting of the stockholders, whether annual or special, shall be served, either personally, by mail or private carrier, or by facsimile, electronic mail or other electronic means, upon each stockholder of record entitled to vote at such meeting, not less than ten (10) nor more than sixty (60) days before the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Notice shall be sent by facsimile, electronic mail or other electronic means only to stockholders who have agreed to receive notice by electronic means and who have not revoked such agreement. If transmitted electronically, notice shall be deemed given: (1) by facsimile, when directed to a number at which the stockholder has consented to receive notice; (2) by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (a) such posting or (b) the giving of such separate notice; and (4) by any other form of electronic transmission, when directed to the stockholder. Notice of any meeting of stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The notice shall also state the means of remote communication, if any, by which stockholders and proxy holders may be deemed present in person and vote at such meeting. Notice of any meeting of stockholders shall not be required to be given to any stockholder who, in person or by his authorized attorney, either before or after such meeting, shall waive such notice in writing. Attendance of a stockholder at a meeting, either in person or by proxy, shall itself constitute waiver of notice and waiver of any and all objections to the place and time of the meeting and manner in which it has been called or convened, except when a stockholder attends a meeting solely for the purpose of stating, at the beginning of the meeting, any such objections to the transaction of business. Notice of the time and place of any adjourned meeting need not be given otherwise than by the announcement at the meeting at which adjournment is taken, unless the adjournment is for more than thirty (30) days or after the adjournment a new record date is set.

SECTION 5. PROXIES . A stockholder may attend, represent, and vote his shares at any meeting in person, or be represented and have his shares voted for by a proxy which such stockholder has (i) duly executed in writing or (ii) transmitted by electronic means and which has been authenticated as required by law. No proxy shall be valid after three (3) years from the date of its execution unless a longer period is expressly provided in the proxy. Each proxy shall be revocable unless otherwise expressly provided in the proxy or unless otherwise made irrevocable by law.

SECTION 6. QUORUM . The holders of a majority of the stock issued, outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders and shall be required for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation, or by these Bylaws. When a quorum is present at the original meeting, any business which might have been transacted at the original meeting may be transacted at an adjourned meeting, even when a quorum is not present at the adjourned meeting. The stockholders at a meeting at which a quorum is initially present may continue to do business until adjournment, notwithstanding the withdrawal of sufficient stockholders to leave less than a quorum. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting unless the adjournment is for more than thirty (30) days or after the adjournment a new record date is set, until the required amount of voting stock shall be present. At such adjourned meeting at which a quorum shall be present, in person or by proxy, any business may be transacted that might have been transacted at the meeting originally called.

SECTION 7. VOTING OF SHARES . Each outstanding share of voting capital stock of the Corporation shall be entitled to one vote on each matter submitted to a vote at a meeting of the stockholders, except as otherwise provided in the Certificate of Incorporation. The vote by the holders of a majority of the shares voted on any matter at a meeting of stockholders at which a quorum is present shall be the act of the stockholders on that matter, unless the vote of a greater number is required by law, by the Certificate of Incorporation, or by these Bylaws; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Voting on all matters except the election of directors shall be by voice vote or show of hands unless the holders of ten percent (10%) of the shares represented at the meeting shall, prior to voting on any matter, demand a written ballot on that particular matter. All elections of directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation. Shares of its own stock owned by the Corporation, directly or indirectly, through a subsidiary or otherwise, shall not be voted and shall not be counted in determining the number of shares entitled to vote; except that shares held in a fiduciary capacity may be voted and shall be counted except to the extent provided by law.

SECTION 8. ACTION WITHOUT MEETING .

(a) Any action required or permitted to be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

(b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no consent shall be effective to take the corporate action referred to in such consent unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner required in these Bylaws, written consents signed by a sufficient number of stockholders to take action are delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.

(c) A telegram, electronic mail or other electronic transmission consenting to action to be taken and transmitted by a stockholder or proxy holder, or by a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written, signed and dated, as required by Section 228 of the General Corporation Law of Delaware and by these Bylaws, provided that any such telegram, electronic mail or other electronic transmission sets forth or is delivered with information from which the Corporation can determine: (i) that the telegram, electronic mail or other electronic transmission was transmitted by the stockholder, proxy holder or person authorized to act for the stockholder or proxy holder; and (ii) the date on which such stockholder, proxy holder or authorized person(s) transmitted such telegram, electronic mail or other electronic transmission. The date on which such telegram, electronic mail or other electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. Unless otherwise provided by resolution of the Board of Directors, no consent given by telegram, electronic mail or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its registered office, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested.

(d) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by the stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.

SECTION 9. LIST OF STOCKHOLDERS . The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete alphabetical list of the stockholders entitled to vote at the meeting, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present.

SECTION 10. INSPECTORS OF ELECTION .

(a) In advance of any meeting of stockholders, the Board of Directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of any such meeting may appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors in advance of the meeting or at the meeting by the person acting as chairman.

(b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine the results and do such acts as may be proper to conduct the election or vote with fairness to all stockholders. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as possible.

(c) If there are three (3) inspectors of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.

(d) On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge or question or matter determined by them and shall execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein.

SECTION 11. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS .

(a) Annual Meetings of Stockholders.

(i) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (a) pursuant to the notice of meeting pursuant to Article II, Section 4 of these Bylaws; (b) by or at the direction of the Board of Directors; or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Bylaw (Article II, Section 11), who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw.

(ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (a)(i) of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th calendar day nor earlier than the close of business on the 90th calendar day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) calendar days before or more than sixty (60) calendar days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th calendar day prior to such annual meeting and not later than the close of business on the later of the 60th calendar day prior to such annual meeting or the 10th calendar day following the calendar day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14a-11 thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner and the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.

(b) Special Meetings of Stockholders.

(i) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of meeting under Article II, Section 4 of these Bylaws. If directors are to be elected at a special meeting of stockholders pursuant to the notice of meeting, nominations of persons for election to the Board of Directors at such meeting may be made (a) by or at the direction of the Board of Directors, or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw.

(ii) In the event a special meeting of stockholders is called for the purpose of electing one or more directors to the Board of Directors, any stockholder may, pursuant to clause (b)(i) above, nominate a person or persons (as the case may be) for election to such position(s) as specified in the notice of meeting, if the stockholder shall have delivered notice containing the information specified in paragraph (a)(ii) of this Bylaw to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th calendar day prior to such special meeting and not later than the close of business on the later of the 60th calendar day prior to such special meeting or the 10th calendar day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder’s notice as described above.

(i) Only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded.

(ii) For purposes of this Bylaw, “public announcement” shall mean disclosure in a press release reported in a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”).

(iii) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

SECTION 12. STOCKHOLDER COMMUNICATIONS WITH DIRECTORS . The Board of Directors may from time to time establish or amend the procedures for stockholder communications to the Board of Directors. Such procedures shall be contained in the Corporation’s proxy statement for its annual meeting of stockholders or such other communication as the Board may deem appropriate in its sole discretion. Any stockholder who desires to send a communication to members of the Board of Directors shall be required to submit such communication in accordance with such procedures. All communications properly submitted under the procedures established by the Board of Directors, except those deemed inappropriate as provided below, will be delivered to all members of the Board of Directors periodically, generally in advance of each regularly scheduled Board meeting. The Secretary shall not forward communications which (a) are not reasonably related to the business of the Corporation, (b) concern individual grievances or other interests that are personal to the stockholder submitting the communication and that cannot reasonably be construed to present a matter of concern to stockholders generally, or (c) under community standards, contain offensive, scurrilous or abusive content or that advocate engaging in illegal activities. If the Secretary, in his or her judgment, deems a communication inappropriate under the foregoing criteria, it will be returned to the person who submitted it together with a brief explanation of the reason why it has been deemed inappropriate for delivery.

ARTICLE III

BOARD OF DIRECTORS

SECTION 1. GENERAL POWERS . The business and affairs of the Corporation shall be managed by the Board of Directors, except as otherwise provided by law, by the Certificate of Incorporation of the Corporation or by these Bylaws.

SECTION 2. NUMBER AND QUALIFICATIONS . The authorized number of directors shall be determined from time to time by resolution of the Board of Directors, provided that the number of directors shall not exceed nine (9), and provided further that any decrease in the number of directors shall not shorten an incumbent director’s term of office. Directors need not be residents of the State of Delaware or stockholders of the Corporation. Prior to being nominated for election or appointed to the Board of Directors, each proposed nominee or appointee must submit (or have previously submitted) an irrevocable, conditional letter of resignation to the Board of Directors (in a form reasonably acceptable to the Board of Directors) that shall become effective upon such person being charged with a felony or equivalent offense under the laws of any jurisdiction.

SECTION 3. ELECTION OF DIRECTORS; TERM . The directors shall be elected for annual terms at the annual meeting of stockholders (or by written consent in lieu of such meeting) and such directors, as provided in Section 7 of Article II, shall be elected by a plurality of the votes of the shares present or represented by proxy at the meeting (or held by stockholders executing the written consent in lieu of such meeting) and entitled to vote in the election of directors. Each director shall hold office until his death, resignation, retirement, removal, disqualification or his successor is elected and qualifies.

SECTION 4. REMOVAL . At a special meeting of the stockholders called for the purpose and in the manner provided in these Bylaws, subject to any limitations imposed by law or the Certificate of Incorporation, the Board of Directors, or any individual director, may be removed from office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors.

SECTION 5. RESIGNATION . Except as provided in Section 2 of this Article III, any director of the Corporation may resign at any time by giving notice in writing or by electronic transmission to the President or the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of such notice or at such later time as shall be specified in such notice. The acceptance of such resignation shall not be necessary to make it effective.

SECTION 6. VACANCIES . Any vacancy in the Corporation’s Board of Directors, including, without limitation, any vacancy created by an increase in the authorized number of directors or resulting from the stockholders’ failure to elect the full authorized number of directors, may be filled by the vote of a majority of the remaining directors then in office, though less than a quorum. If the vacant office was held by a director elected by a voting group, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. A director appointed or elected to fill a vacancy shall be appointed or elected for the unexpired term of his predecessor in office. The stockholders may elect a director at any time to fill a vacancy not filled by the directors.

SECTION 7. COMPENSATION . The Board of Directors may cause the Corporation to compensate directors for thei r services as directors and may provide for payment by the Corporation of all expenses incurred by directors in attending regular and special meetings of the Board.

ARTICLE IV

MEETINGS OF DIRECTORS

SECTION 1. ANNUAL AND REGULAR MEETINGS . A regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of stockholders. In addition, the Board of Directors may provide, by resolution, for the holding of additional regular meetings.

SECTION 2. SPECIAL MEETINGS . Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or any two or more directors, or one director if only one director is then in office. Such meetings may be held at the time and place designated in the notice of the meeting.

SECTION 3. NOTICE OF MEETINGS .

(a) Regular meetings of the Board of Directors may be held without notice. Written notice of the time and place of all special meetings of the Board of Directors shall be given no later than 5:00 p.m. in the time zone of the principal office of the Corporation on a date after which at least two business days intervene before the date of the meeting; such notice need not specify the purpose for which the meeting is called. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance at such meeting, except when the director attends the meeting for the express purposes of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Notice of an adjourned meeting need not be given if the time and place are fixed at the meeting adjourning and if the period of adjournment does not exceed ten (10) days in any one adjournment.

(b) The transaction of all business at any meeting of the Board of Directors, however called or noticed, or wherever held, shall be as valid as though made at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in any written waiver of notice or consent unless so required by the Certificate of Incorporation or these Bylaws. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meetings.

SECTION 4. QUORUM . At all meetings of the Board of Directors, the presence of a majority of the directors then in office shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present at any meeting may adjourn from time to time until a quorum is constituted. Notice of the time and place of any adjourned meeting need only be given by announcement at the meeting at which adjournment is taken.

SECTION 5. MANNER OF ACTING . Except as otherwise provided by law, these Bylaws or the Certificate of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

SECTION 6. ORGANIZATION . Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Deputy Chairman of the Board, if any, or in their absence by the President, or in the President’s absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in the Secretary’s absence, the chairman of the meeting may appoint any person to act as secretary of the meeting.

SECTION 7. ACTION WITHOUT MEETING . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee.

SECTION 8. TELEPHONIC MEETINGS . Members of the Board of Directors may participate in a meeting of such Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting.

ARTICLE V

COMMITTEES OF THE BOARD

SECTION 1. CREATION . The Board of Directors may designate one (1) or more directors to constitute an Executive Committee or other committees, each of which, to the extent authorized by law and provided in the resolution shall have and may exercise all of the authority delegated to the Executive Committee or other committee by the Board of Directors in the management of the Corporation, except as set forth in Section 7 below.

SECTION 2. VACANCY . Any permanent vacancy occurring on a committee shall be filled by the Board of Directors.

SECTION 3. REMOVAL . Any member of a committee may be removed at any time, with or without cause, by the Board of Directors.

SECTION 4. PROCEDURES AND MINUTES . Any such committee shall elect a presiding officer from among its members and may fix its own rules of procedure, which may not be inconsistent with these Bylaws. Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required.

SECTION 5. MEETINGS; QUORUM . Regular meetings of any such committee may be held without notice at such time and place as such committee may fix by resolution. Special meetings of any such committee may be called by any member thereof upon not less than one (1) day’s notice stating the place and time of such meeting, which notice may be written or oral. Any member of the committee may waive notice of meeting and no notice of a meeting need be given to any member thereof who attends in person. The notice of a meeting of a committee need not state the business proposed to be transacted at the meeting. A majority of the members of any such committee shall constitute a quorum for the transaction of business at any meeting thereof, and actions of such committee must be authorized by the affirmative vote of a majority of the members pursuant to a meeting at which a quorum is present. In the absence or disqualification of a member of the committee, the member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member.

SECTION 6. RESPONSIBILITY OF DIRECTORS . The designation of an Executive Committee or other committee and the delegation thereto of authority shall not alone operate to relieve the Board of Directors, or any member thereof, of any responsibility or liability imposed upon it or him by law.

SECTION 7. RESTRICTIONS ON COMMITTEES . Neither the Executive Committee nor any other committee shall have the authority to (a) approve or adopt or recommend to the stockholders any action or matter expressly required by the General Corporation Law of Delaware to be submitted to the stockholders for approval; (b) adopt, amend or repeal Bylaws; (c) amend the Certificate of Incorporation; (d) authorize distributions; (e) fill vacancies on the Board of Directors or on any of its committees, except as provided in Section 5 above; (f) approve a plan of merger not requiring stockholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except within limits specifically prescribed by the Board of Directors; (i) fix compensation of the directors for serving on the Board of Directors or on any committee; or (j) amend or repeal any resolution of the Board of Directors which by its terms shall not be so amendable or repealable.

ARTICLE VI

OFFICERS

SECTION 1. OFFICERS . The Board of Directors shall elect a President and a Secretary or Assistant Secretary, and may elect or appoint a chief executive officer, one or more vice presidents, one or more assistant secretaries, a treasurer or chief financial officer, and other or additional officers as in its opinion are desirable for conduct of the business of the Corporation. The Board of Directors may elect from its own membership a Chairman of the Board. The Board of Directors may by resolution empower any officer or officers of the Corporation to appoint from time to time such vice presidents and other or additional officers as in the opinion of the officer(s) so empowered by the Board of Directors are desirable for the conduct of the business of the Corporation. Any two or more offices may be held by the same person. In no event, however, may an officer act in more than one capacity where action of two or more officers is required.

SECTION 2. ELECTION AND TERM . Each officer of the Corporation shall hold office for the term for which he is elected or appointed, and until his successor has been duly elected or appointed and has qualified, or until his death, resignation or removal pursuant to these Bylaws. Elections by the Board of Directors may be held at any regular or special meeting of the Board.

SECTION 3. REMOVAL . Any officer elected by the Board of Directors may be removed, either with or without cause, by a vote of the Board of Directors. Any officer appointed by another officer or officers may be removed, either with or without cause, by either a vote of the Board of Directors or by the officer or officers given the power to appoint that officer. The removal of any person from office shall be without prejudice to the contract rights, if any, of the person so removed.

SECTION 4. RESIGNATIONS . Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the President or Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, and unless otherwise specified therein, no acceptance of such resignation shall be necessary to make it effective.

SECTION 5. VACANCIES . A vacancy in any office because of death, resignation, removal, disqualification, or any other cause, shall be filled for the unexpired portion of the term in the manner prescribed by these Bylaws for regular appointment or elections to such offices.

SECTION 6. COMPENSATION . The compensation of all officers of the Corporation shall be fixed by the Board of Directors, except that the Board may delegate to any officer who has been given the power to appoint subordinate officers the authority to fix the salaries of such appointed officers. No officer shall be prevented from receiving a salary as an officer by reason of the fact that the officer is also a member of the Board of Directors.

SECTION 7. CHAIRMAN OF THE BOARD . The Chairman of the Board of Directors, if elected, shall preside at all meetings of the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by these Bylaws.

SECTION 8. CHIEF EXECUTIVE OFFICER . The Chief Executive Officer, if elected, shall be the principal executive officer of the Corporation and shall preside at meetings of the Board of Directors in the absence of the Chairman of the Board. The Chief Executive Officer shall be subject to the control and direction of the Board of Directors and shall supervise and control the management of the Corporation.

SECTION 9. PRESIDENT . If no Chief Executive Officer is elected, the President shall be the principal executive officer of the Corporation, and shall preside at meetings of the Board of Directors in the absence of the Chairman of the Board and the Chief Executive Officer. The President shall be subject to the control and direction of the Board of Directors, and in general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer from time to time.

SECTION 10. VICE PRESIDENTS . In the absence or disability of the President or in the event of his death, inability or refusal to act, the Vice Presidents, in the order of their length of service as such, unless otherwise determined by the Board of Directors, shall perform the duties and exercise the powers of the President. In addition, the Vice Presidents shall perform such other duties and have such other powers as the Board of Directors shall prescribe. Vice Presidents shall not be executive officers of the Corporation except as designated by the Board of Directors.

SECTION 11. SECRETARY AND ASSISTANT SECRETARY . The Secretary shall attend all meetings of the stockholders and of the Board of Directors, and shall record all acts and proceedings of such meetings in the minute book of the Corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

SECTION 12. CHIEF FINANCIAL OFFICER OR TREASURER AND ASSISTANT TREASURER . The Chief Financial Officer or Treasurer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner, and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer or Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Corporation. The Chief Financial Officer or Treasurer shall perform other duties commonly incident to this office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer or Treasurer in the absence or disability of the Chief Financial Officer or Treasurer, and each Assistant Treasurer shall perform other duties commonly incident to this office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

SECTION 13. CONTROLLER AND ASSISTANT CONTROLLER . The Controller, if one has been appointed, shall have charge of the accounting affairs of the Corporation and shall have such other powers and perform such other duties as the Board of Directors shall designate. Each Assistant Controller shall have such powers and perform such duties as may be assigned by the Board of Directors and the Assistant Controllers shall exercise the powers of the Controller during that officer’s absence or inability to act.

SECTION 14. OTHER OFFICERS . The other officers, if any, of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in a resolution adopted by the Board of Directors that is not inconsistent with these Bylaws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board of Directors.

SECTION 15. DUTIES OF OFFICERS MAY BE DELEGATED . In case of the absence of any officer of the Corporation or for any other reason that the Board may deem sufficient, the Board may delegate the powers or duties of such officer to any other officer or to any director for the time being provided a majority of the entire Board of Directors concurs in such delegation.

SECTION 16. BONDS . The Board of Directors may, by resolution, require any or all officers, agents and employees of the Corporation to give bond to the Corporation, with sufficient securities, conditioned on faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors.

ARTICLE VII

CAPITAL STOCK AND TRANSFER OF SAME

SECTION 1. CERTIFICATES FOR SHARES . The shares of stock of the Corporation may be issued in book-entry form or evidenced by certificates. However, every stockholder shall be entitled, upon request, to have a certificate or certificates in such form as the Board of Directors shall determine, certifying the number and class of fully paid shares owned by him. To the extent that shares of stock are represented by certificates, the certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the President or any Vice President or a person who has been designated as the chief executive officer of the Corporation and by the Secretary, Assistant Secretary, Treasurer or Assistant Treasurer and sealed with the seal of the Corporation or a facsimile thereof. The signatures of any such officers upon a certificate may be facsimiles or may be engraved or printed or omitted if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile or other signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. The certificates shall be consecutively numbered or otherwise identified, and the name and address of the persons to whom they are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates or held in book-entry form, the number and class of shares represented by such certificates or held in book-entry form, respectively, and the respective dates thereof, and in case of cancellation the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued.

SECTION 2. TRANSFER OF SHARES . Transfer of shares shall be made on the stock transfer books of the Corporation only upon surrender of the certificates for the shares sought to be transferred by the record holder thereof or by his duly authorized agent, transferee or legal representative. All certificates surrendered for transfer shall be cancelled before new certificates for the transferred shares shall be issued.

SECTION 3. TRANSFER AGENT AND REGISTRAR . The Board of Directors may appoint one or more transfer agents and one or more registrars of transfer and may require all stock certificates to be signed or countersigned by the transfer agent and registered by the registrar of transfers.

SECTION 4. CLOSING TRANSFER BOOKS AND FIXING RECORD DATE .

(a) For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, such record date shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Such determination of stockholders of record shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b) For the purpose of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, such record date, when no prior action by the Board of Directors is required by the General Corporation Law of Delaware, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is filed with the Secretary of the Corporation. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the General Corporation Law of Delaware, such record date shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

(c) For the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

SECTION 5. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES . The Board of Directors may authorize the issuance of a new share certificate, in place of a certificate claimed to have been lost, misplaced, stolen or destroyed, upon receipt of an affidavit of such fact from the person claiming the loss, theft or destruction. When authorizing such issuance of a new certificate, the Board may require the claimant to give the Corporation a bond in such sum as it may direct to indemnify the Corporation against loss from any claim with respect to the certificate claimed to have been lost or destroyed; or the Board may, by resolution reciting that the circumstances justify such action, authorize the issuance of the new certificate without requiring such a bond.

SECTION 6. HOLDER OF RECORD . The Corporation may treat as absolute owner of the shares the person in whose name the shares stand of record on its books just as if that person had full competency, capacity and authority to exercise all rights of ownership irrespective of any knowledge or notice to the contrary or any description indicating a representative, pledge or other fiduciary relation or any reference to any other instrument or to the rights of any other person appearing upon its record or upon the share certificate; except that any person furnishing to the Corporation proof of his appointment as a fiduciary shall be treated as if he were a holder of record of the Corporation’s shares.

SECTION 7. TREASURY SHARES . Treasury shares of the Corporation shall consist of such shares as have been issued and thereafter acquired but not cancelled by the Corporation. Treasury shares shall not carry voting or dividend rights, except rights in share dividends.

ARTICLE VIII

INDEMNIFICATION AND REIMBURSEMENT OF DIRECTORS AND OFFICERS

SECTION 1. INDEMNIFICATION FOR EXPENSES AND LIABILITIES . Subject to the limitations set forth in Section 3 of this Article VIII, any person who at any time serves or has served as a director, officer, employee or agent of the Corporation, or in such capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, other enterprise, shall be entitled to be indemnified by the Corporation to the fullest extent permitted by law against (a) reasonable expenses, including reasonable attorneys’ fees, actually and necessarily incurred by him in connection with any Proceeding, and whether or not brought by or on behalf of the Corporation, seeking to hold him liable by reason of the fact that he is or was acting in such capacity, and (b) reasonable payments made by him in satisfaction of any judgment, money decree, fine, penalty or settlement for which he may have become liable in any such Proceeding.

SECTION 2. ADVANCE PAYMENT OF EXPENSES . The Corporation may, in its sole discretion, upon authorization of a majority of the disinterested members of the Board of Directors (or a duly appointed committee thereof), pay expenses incurred by a person entitled to indemnification under Section 1 above, in defending a Proceeding (or appearing as a witness at a time when he or she has not been named as a defendant or a respondent with respect thereto) in advance of the final disposition of such Proceeding, upon such conditions as a majority of the disinterested members of the Board of Directors (or a duly appointed committee thereof) may require, including without limitation, upon receipt of a secured or unsecured undertaking by or on behalf of the director or officer involved to repay the expenses described herein if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation against such expenses.

SECTION 3. LIMITATION . Notwithstanding anything to the contrary contained in these Bylaws, unless otherwise required by law, no person shall be entitled to indemnification or advancement or reimbursement of expenses in the event (a) such person’s employment or affiliation with the Corporation has been terminated by the Corporation for “cause”, as determined in accordance with such person’s written contract of employment, if any, or if no such contract exists, as determined by the Board of Directors (b) such person is convicted of commission of a felony (even if such Proceeding is not final) or (c) a majority of the disinterested members of the Board of Directors (or a duly appointed committee thereof), has determined, in its sole discretion, that such person has not acted in good faith in the performance of his or her duties on behalf of the Corporation.

SECTION 4. INSURANCE . The Corporation shall have the power to purchase and maintain insurance (on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan) against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability.

SECTION 5. OTHER INDEMNIFICATION . The Corporation’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other entity shall be reduced by any amount such person may collect as indemnification from such other entity.

SECTION 6. OTHER AUTHORITY TO INDEMNIFY . This Article VIII shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to any person (whether a director, officer, employee or agent) when and as authorized by appropriate corporate action.

SECTION 7. DEFINITIONS . The following terms as used in this Article shall have the following meanings. “Proceeding” means any threatened, pending or completed action, suit, or proceeding and any appeal therein (and any inquiry or investigation that could lead to such action, suit, or proceeding), whether civil, criminal, administrative, or investigative “Director,” “officer,” “employee” and “agent” include the estate or personal representative of a director, officer, employee or agent. “Corporation” shall have the meaning ascribed thereto in Section 145(h) of the General Corporation Law of Delaware. References to “other enterprises”, “serving at the request of the Corporation” and “not opposed to the best interests of the Corporation” shall refer to the meanings ascribed to such phrases in Section 145(i) of the General Corporation Law of Delaware.

ARTICLE IX

GENERAL PROVISIONS

SECTION 1. DISTRIBUTIONS TO STOCKHOLDERS . The Board of Directors may from time to time authorize, and the Corporation may make, distributions to its stockholders (including, without limitation, dividends and distributions involving acquisition of the Corporation’s shares) in the manner and upon the terms and conditions provided by law, and subject to the provisions of its Certificate of Incorporation.

SECTION 2. SEAL . The seal of the Corporation shall be in such form as the Board of Directors may from time to time determine.

SECTION 3. DEPOSITORIES AND CHECKS . All funds of the Corporation shall be deposited in the name of the Corporation in such bank, banks or other financial institutions as the Board of Directors may from time to time designate and shall be drawn out on checks, drafts or other orders signed on behalf of the Corporation by such person or persons as the Board of Directors may from time to time designate.

SECTION 4. LOANS . No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

SECTION 5. FISCAL YEAR . The fiscal year of the Corporation shall be fixed by the Board of Directors.

SECTION 6. CONTRACTS . The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Except as so authorized or otherwise expressly provided in these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.

SECTION 7. AMENDMENTS . The Bylaws of the Corporation may be altered or amended and new Bylaws may be adopted by the stockholders or, if authorized by the Certificate of Incorporation, by the Board of Directors at any regular or special meeting of the Board of Directors; provided, however, that, if such action is to be taken at a meeting of the stockholders, notice of the general nature of the proposed change in the Bylaws shall have been given in the notice of a meeting. Action by the stockholders with respect to Bylaws shall be taken by an affirmative vote of a majority of the shares entitled to elect directors, and action by the directors with respect to Bylaws shall be taken by an affirmative vote of a majority of all directors then holding office.

SIXTH SEVENTH AMENDED AND RESTATED

BYLAWS

SMART ONLINE MOBILESMITH, INC.

ARTICLE I

OFFICES

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 8. ACTION WITHOUT MEETING .

SECTION 10. INSPECTORS OF ELECTION .

(c) If there are three (3) inspectors of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.

SECTION 11. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS .

(a) Annual Meetings of Stockholders.

(b) Special Meetings of Stockholders.

ARTICLE III

BOARD OF DIRECTORS

SECTION 7. COMPENSATION . The Board of Directors may cause the Corporation to compensate directors for their services as directors and may provide for payment by the Corporation of all expenses incurred by directors in attending regular and special meetings of the Board.

ARTICLE IV

MEETINGS OF DIRECTORS

SECTION 3. NOTICE OF MEETINGS .

ARTICLE V

COMMITTEES OF THE BOARD

SECTION 2. VACANCY . Any permanent vacancy occurring on a committee shall be filled by the Board of Directors.

SECTION 3. REMOVAL . Any member of a committee may be removed at any time, with or without cause, by the Board of Directors.

ARTICLE VI

OFFICERS

ARTICLE VII

CAPITAL STOCK AND TRANSFER OF SAME

SECTION 4. CLOSING TRANSFER BOOKS AND FIXING RECORD DATE .

ARTICLE VIII

INDEMNIFICATION AND REIMBURSEMENT OF DIRECTORS AND OFFICERS

ARTICLE IX

GENERAL PROVISIONS

SECTION 2. SEAL . The seal of the Corporation shall be in such form as the Board of Directors may from time to time determine.

SECTION 5. FISCAL YEAR . The fiscal year of the Corporation shall be fixed by the Board of Directors.

**Confidential portions have been omitted pursuant to a request for confidential treatment

		Page No.
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012		3
	Condensed Statements of Operations (unaudited) for the three and six months ended June 30, 2013 and 2012		4
	Condensed Statements of Cash Flows (unaudited) for the six months ended June 30, 2013 and 2012		5
	Statement of Stockholders’ Deficit as of June 30, 2013 (unaudited) and December 31, 2012		6
	Notes to Financial Statements (unaudited)		7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		19
Item 4.	Controls and Procedures		19

PART II – OTHER INFORMATION

Item 6.	Exhibits		20

Signatures			21

SMART ONLINE			ES CONSULTING
/s/Amir Elbaz			/s/ Robert M. Brinson, Jr.,
Name Amir Elbaz			Name Principal
Title Chairman of the Board			Title Robert M. Brinson, Jr.,

1.	I have reviewed this Quarterly Report on Form 10-Q of MobileSmith, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Amir Elbaz
Amir Elbaz
Chairman and Chief Executive Officer

	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.