☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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95-4439334
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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5400 Trinity Road, Suite 208
Raleigh, North Carolina
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27607
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☑
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(Do not check if a smaller reporting company)
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Page No.
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PART I – FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015
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3
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Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2016 and 2015
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4
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Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2016 and 2015
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5
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Condensed Consolidated Statement of Stockholders' Deficit for the period ended June 30, 2016 (unaudited)
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6
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Notes to Condensed Consolidated Financial Statements (unaudited)
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7
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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11
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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15
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Item 4.
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Controls and Procedures
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15
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PART II – OTHER INFORMATION
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Item 2.
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Unregistered Sales of Equity Security and Use of Proceeds
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16
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Item 5.
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Other Information
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16
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Item 6.
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Exhibits
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16
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Signatures
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17
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ASSETS
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June 30,
2016
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December 31,
2015
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Current Assets
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Cash and Cash Equivalents
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$
582,027
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$
580,220
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Restricted Cash
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125,001
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124,988
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Trade Accounts Receivable, Net of Allowance for Doubtful Accounts of $99,300 and $16,050, Respectively
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399,257
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183,350
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Prepaid Expenses and Other Current Assets
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70,387
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69,552
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Total Current Assets
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1,176,672
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958,110
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Property & Equipment, Net
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96,764
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98,963
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Capitalized Software, Net
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336,505
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390,518
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Intangible Assets, Net
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46,352
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55,099
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Other Assets
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-
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6,264
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Total Other Assets
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479,621
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550,844
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Total Assets
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$
1,656,293
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$
1,508,954
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current Liabilities
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Trade Accounts Payable
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$
86,658
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$
45,717
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Accrued Expenses
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225,486
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247,858
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Accrued Interest
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369,895
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350,613
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Capital Lease Obligations
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32,208
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30,877
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Deferred Revenue
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1,560,718
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1,007,970
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Bank Loan
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-
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5,000,000
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Convertible Notes Payable, Related Parties, Net of Discount
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-
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33,363,488
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Convertible Notes Payable, Net of Discount
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-
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680,640
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Total Current Liabilities
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2,274,965
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40,727,163
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Long-Term Liabilities
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Bank Loan
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5,000,000
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-
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Convertible Notes Payable, Related Parties, Net of Discount
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36,531,560
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-
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Convertible Notes Payable, Net of Discount
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680,640
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-
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Capital Lease Obligations
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67,317
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83,761
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Deferred Rent
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48,264
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53,592
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Total Long-Term Liabilities
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42,327,781
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137,353
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Total Liabilities
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44,602,746
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40,864,516
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Commitments and Contingencies (Note 3)
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Stockholders' Deficit
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Preferred Stock, $0.001 Par Value, 5,000,000 Shares Authorized, No Shares Issued and Outstanding at June 30, 2016 and December 31, 2015
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-
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-
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Common Stock, $0.001 Par Value, 100,000,000 and 45,000,000 Shares Authorized At June 30, 2016 and December 31, 2015, Respectively; 19,827,542 Shares Issued and Outstanding at June 30, 2016 and December 31, 2015
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19,828
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19,828
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Additional Paid-in Capital
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98,062,577
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97,545,601
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Accumulated Deficit
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(141,028,858
)
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(136,920,991
)
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Total Stockholders' Deficit
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(42,946,453
)
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(39,355,562
)
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Total Liabilities and Stockholders' Deficit
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$
1,656,293
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$
1,508,954
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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Three Months Ended
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Six Months Ended
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June 30, 2016 |
June, 30 2015 |
June, 30 2016 |
June, 30 2015 |
REVENUES:
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Subscription and Support
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$
494,169
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$
377,545
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$
965,299
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$
773,733
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Professional Services and Other
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4,154
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30,000
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4,154
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60,000
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Total Revenue
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498,323
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407,545
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969,453
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833,733
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COST OF REVENUES:
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Subscription and Support
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93,048
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74,229
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208,369
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133,698
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Professional Services and Other
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51,179
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14,272
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56,242
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23,545
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Total Cost of Revenue
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144,227
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88,501
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264,611
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157,243
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GROSS PROFIT
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354,096
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319,044
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704,842
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676,490
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OPERATING EXPENSES:
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Sales and Marketing
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325,450
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267,047
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561,174
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559,246
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Research and Development
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400,856
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333,685
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807,399
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673,825
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General and Administrative
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399,388
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283,887
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752,361
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598,453
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Total Operating Expenses
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1,125,694
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884,619
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2,120,934
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1,831,524
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LOSS FROM OPERATIONS
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(771,598
)
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(565,575
)
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(1,416,092
)
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(1,155,034
)
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OTHER INCOME (EXPENSE):
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Other Income
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3,529
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1,111
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11,568
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1,490
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Interest Expense, Net
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(1,221,447
)
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(1,311,617
)
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(2,703,343
)
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(2,578,753
)
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Total Other Expense
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(1,217,918
)
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(1,310,506
)
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(2,691,775
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(2,577,263
)
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NET LOSS
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$
(1,989,516
)
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$
(1,876,081
)
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$
(4,107,867
)
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$
(3,732,297
)
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NET LOSS PER COMMON SHARE:
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Basic and Fully Diluted
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$
(0.10
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$
(0.09
)
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$
(0.21
)
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$
(0.19
)
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WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE:
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Basic And Fully Diluted
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19,827,542
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19,827,542
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19,827,542
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19,827,542
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Common Stock
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Additional
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$0.001
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Paid-In
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Accumulated
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Shares
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Par
Value
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Capital
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Deficit
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Totals
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BALANCES, DECEMBER 31, 2015
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19,827,542
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$
19,828
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$
97,545,601
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$
(136,920,991
)
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$
(39,355,562
)
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Equity-Based Compensation
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-
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42,501
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-
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42,501
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Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt
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-
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474,475
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-
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474,475
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Net Loss
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-
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-
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(4,107,867
)
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(4,107,867
)
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BALANCES, JUNE 30, 2016
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19,827,542
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$
19,828
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$
98,062,577
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$
(141,028,858
)
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$
(42,946,453
)
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Debt Description
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June 30,
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December 31,
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2016
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2015
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Maturity
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Rate
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Comerica Bank Loan and Security Agreement
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$
5,000,000
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$
5,000,000
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June 2018
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3.85
%
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Capital lease obligations - Noteholder lease
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80,980
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92,270
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August 2019
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8.00
%
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Capital lease obligations - office furniture
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18,545
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22,368
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August 2018
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9.80
%
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Convertible notes - related parties, net of discount of $1,392,671 and $2,010,743, respectively
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36,531,560
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33,363,488
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November 2018
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8.00
%
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Convertible notes, net of discount of $50,129
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680,640
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680,640
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November 2018
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8.00
%
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Total debt
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42,311,725
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39,158,766
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Less: current portion of long term debt
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Capital lease obligations
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32,208
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30,877
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Comerica Bank LSA
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-
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5,000,000
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Convertible notes - related parties, net of discount of $2,010,743
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-
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33,363,488
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Convertible notes, net of discount of $50,129
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-
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680,640
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Total current portion of long term debt
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32,208
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39,075,005
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Debt - long term
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$
42,279,517
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$
83,761
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Convertible Notes Type:
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Balance
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2007 NPA notes, net of discount
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$
29,428,736
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2014 NPA notes, net of discount
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7,783,464
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Total convertible notes
, net of discount
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$
37,212,200
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Year:
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2016
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$
19,629
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2017
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39,259
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2018
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34,189
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2019
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19,412
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112,489
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Less amount representing interest
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(12,964
)
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Capital lease obligations
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$
99,525
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Year:
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2016
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$
82,315
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2017
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167,786
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2018
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172,418
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2019
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44,082
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Total
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$
466,601
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Number of
Shares
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Weighted
Average
Exercise Price
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Weighted
Average
Remaining
Contractual Term
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Aggregate
Intrinsic
Value
|
|
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Outstanding, December 31, 2015
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361,349
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$
1.44
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Cancelled
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(75,000
)
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1.50
|
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Issued
|
-
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-
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Outstanding, June 30, 2016
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286,349
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1.42
|
2.37
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$
36,628
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Vested and exercisable, June 30, 2016
|
234,014
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$
1.38
|
2.62
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$
34,894
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Three Months Ended June 30,
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Increase (Decrease)
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2016
|
2015
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$
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%
|
Revenue
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498,323
|
407,545
|
90,778
|
22
%
|
Cost of Revenue
|
144,227
|
88,501
|
55,726
|
63
%
|
Gross Profit
|
354,096
|
319,044
|
35,052
|
11
%
|
|
|
|
|
|
Sales and Marketing
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325,450
|
267,047
|
58,403
|
22
%
|
Research and Development
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400,856
|
333,685
|
67,171
|
20
%
|
General and Administrative
|
399,388
|
283,887
|
115,501
|
41
%
|
|
|
|
|
|
Interest Expense
|
1,221,447
|
1,311,617
|
(90,170
)
|
(7
%)
|
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Six months ended June 30,
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Increase (Decrease)
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||
|
2016
|
2015
|
$
|
%
|
Revenue
|
969,453
|
833,733
|
135,720
|
16
%
|
Cost of Revenue
|
264,611
|
157,243
|
107,368
|
68
%
|
Gross Profit
|
704,842
|
676,490
|
28,352
|
4
%
|
|
|
|
|
|
Sales and Marketing
|
561,174
|
559,246
|
1,928
|
0
%
|
Research and Development
|
807,399
|
673,825
|
133,574
|
20
%
|
General and Administrative
|
752,361
|
598,453
|
153,908
|
26
%
|
|
|
|
|
|
Interest Expense
|
2,703,343
|
2,578,753
|
124,590
|
5
%
|
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MOBILESMITH, INC.
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August 4, 2016
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By:
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/s/
Amir Elbaz
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Amir Elbaz
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Executive Chairman (Principal Executive Officer)
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August 4, 2016
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By:
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/s/Gleb Mikhailov
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Gleb Mikhailov
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Chief Financial Officer (Principal Financial and Accounting Officer)
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1.
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I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 of MobileSmith, Inc.;
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||||
2.
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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;
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|
||||
3.
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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;
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|
||||
4.
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The registrant’s other certifying officer 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:
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||||
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a)
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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;
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b)
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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;
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||||
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c)
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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
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|
||||
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d)
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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.
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|
||||
5.
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The registrant’s other certifying officer 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):
|
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|
||||
|
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a)
|
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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
|
|
||||
|
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b)
|
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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.
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/s/ Amir Elbaz
|
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Amir Elbaz
|
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Executive Chairman
(Principal Executive Officer)
|
|
1.
|
|
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 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.
|
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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.
|
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The registrant’s other certifying officer 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)
|
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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;
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|
||||
|
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c)
|
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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)
|
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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.
|
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The registrant’s other certifying officer 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)
|
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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)
|
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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/ Gleb Mikhailov
|
|
Gleb Mikhailov
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
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(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
|
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|
||
|
(2)
|
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Amir Elbaz
|
|
Amir Elbaz
|
|
Executive Chairman
(Principal 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.
|
/s/ Gleb Mikhailov
|
|
Gleb Mikhailov
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|